Monday, May 23, 2011

Sime Darby Invests In Liberia

May 23, 2011
Price Target: RM10.76
Share Price: RM9.14


News
# Sime Darby is planning to invest US$3.1 billion (RM9.3 billion) in its oil palm and rubber plantation ventures in Liberia over the next 15 years.

# Recall in 2009, Sime Darby Plantation (a subsidiary of Sime Darby) was awarded a 63-year concession of 220,000ha in Liberia to be developed into oil palm and rubber plantations. To-date, Sime Darby had invested RM50m in Liberia.

# With the commencement of planting activities, Sime Darby is on track to develop 120,000ha in the first 11 years of its concession agreement. The concession area covers four counties, i.e. Grand Cape Mount, Bomi, Bong and Gbarpolu, which will be fully developed and managed by Sime Darby Plantation (Liberia) Inc.

# The entire concession area is expected to be fully planted by 2030.

# Production is expected to begin by June 2015 and Sime Darby expects its plantations in Liberia to produce some 10,800 tonnes of CPO.

Financial impact
No major impact to Sime Darby’s earnings in the near-term, as production will only begin by end-FY15.

Pros / Cons
Positive, as this allows Sime Darby to further expand its land bank. However, this is not unexpected, as the plan was already announced some time back.

Risks Downside risks
1) Sharp plunge in CPO prices;
2) Worse-than-expected weather condition that will result in lower-than-expected FFB yield;
3) Escalating production cost;
4) Labour shortage; and
5) Recent court case with EMAS, which may wipe off ~20% of our FY11 net profit forecast in the worst case (although unlikely to happen).

Forecasts
Maintained

Rating
BUY


Positives:
1) High CPO prices, hence, upside to its FY11 headline KPI; and
2) Entrance of new management and post kitchen sinking suggest the worst is over.

Valuation
Maintain SOP-based TP of RM10.76 and BUY recommendation on the stock.



Source: HLeBroking

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