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Saturday, June 9, 2012

Battersea set to power Sime, SP Setia shares

KUALA LUMPUR: Sime Darby Bhd and SP Setia Bhd’s shares are poised for a significant upside once details of the London’s Battersea Power Station deal are available, analysts said.

The companies yesterday rose as as high as 1.3 per cent after they emerged as the preferred bidders for the site.

Lack of concrete details on the joint-venture bid may have capped the upside, analysts said.

Sime Darby reached a high of RM9.80 before closing marginally lower at RM9.69 than its Thursday’s close of RM9.71, while SP Setia gained 1 sen to end at RM3.76.

There were more than 8.7 million Sime Darby shares traded and less than 50,000 SP Setia shares traded yesterday.

Most analysts viewed the announcement as positive news to the
companies. However, they needed more details before a proper analysis can be made on how the project can benefit the companies’ longterm earnings.

“Generally, we are positive on the property exposure in London given the gradually improving market conditions and resulting economic activities.

“We maintain our ‘outperform’ ratings on both Sime Darby and SP Setia pending further concrete details about the project,” Public Investment Bank said in a report yesterday.

The research house has a target price of RM11.21 and RM4.40 on Sime Darby and SP Setia, respectively.

As at yesterday, there were 20 research houses with a “buy” call and nine research houses with a “hold” tag on Sime Darby.

There were seven analysts recommending “buy”, 14 with “hold” and three “sell” calls on SP Setia.

On Thursday, SP Setia and Sime Darby jointly announced that they had been picked by the joint administrators and receivers of the 15-hectare site in London as the preferred bidder.

They had signed an exclusivity agreement with the joint administrators and receivers to buy the site for STG400 million or about RM2 billion.

Both companies have up to 28 days to do further due diligence as well as negotiate the contract for the acquisition. It means that they will have access to the finer details about the site, including its legal and planning status, upon which they can make a decision as to whether their plans are financially viable.

At the end of the four weeks, they will make a decision as to whether to go ahead.

"At this juncture, the equity share of SP Setia and Sime Darby is still unclear, but with both companies having Pemodalan Nasional Bhd (PNB) as their largest shareholder, we believe it is likely that PNB will take up a direct equity stake in the potential joint-venture.

"However, we do not rule out the possibility of other investors participating in the site's redevelopment," OSK Research said.

Meanwhile, analysts pointed out that the decline in Sime Darby's share price yesterday may be partly due to rising pessimism on crude palm oil prices over the next 12 months.

LMC International Ltd chairman James Fry reportedly said palm oil may extend a decline from its lowest level in seven months as a drop in crude oil prices reduces the appeal of the tropical oil for use in biofuels.

By Business Times

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