Price: RM8.23
Target Price: RM6.20
Recommendation: TRADING SELL
· RM560m cash for Ramunia’s yard. Sime Darby’s final offer for Ramunia’s 170 acres fabrication yard will be settled entirely by RM560m cash and the acquisition is expected to be completed by end 2009. We believe the acquisition price of RM75.6/ft2 which is 32% above the net book value of RM425m@RM57.4/ft2 is fair given the yard’s superior sea frontage.
· Slightly better offer. The final offer is slightly better than the previous offer of c.RM554m which includes RM232m offer and transfer of Ramunia’s net debt of RM332m (as of 30 Jan 09). The previous RM232m offer is to be part settled by RM46.2m cash and RM185.5m worth of new shares in Sime Darby Engineering (“SDE”). Current final offer translates into c.RM1/share (or RM0.58/share on a fully diluted basis for Ramunia).
· Ramunia to seek new business. Post disposal of its yard, Ramunia may be classified as affected issuer under PN16 as a “cash company” and PN17 for disposal of its major assets. Ramunia therefore needs to seek a new business with its net cash of c.RM292.2m after the disposal to maintain its listing status.
· Medium term earnings positive for Sime. Post acquisition, SDE will emerge as the largest fabricator in Malaysia as the acquisition will enlarge SDE’s yard space to 284 acres from 114 acres, while its yard capacity will almost double to 105,000MT from 55,000MT. Earnings impact however would only be felt in late FY10 as SDE expands its order book by bidding for more O&G fabrication projects.
· Maintain Trading Sell on Sime with unchanged target price of RM6.20. Buoyed by the positive market sentiment, Sime is currently trading at a pricey FY10 PER of 21.4x. Risks we suspect is biased to the downside should the market experience a correction.
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