KUALA LUMPUR (June 30): CIMB IB Research reiterated its ‘Add’ recommendation on Sime Darby Bhd following the group’s disposal of approximately 297.5 acres of agriculture land in Kuala Langat, Selangor, to a wholly-owned subsidiary of Permodalan Nasional Bhd (PNB).

The land planted with oil palm trees, known as New Lunderston Estate, is sold to PNB Development Sdn Bhd for RM85.5 million cash.

“We are positive on this news as we estimate Sime Darby is expected to record a gain on disposal of RM62.4 million from the sale of the land after netting off non-controlling interests,” CIMB Research said in its note today.

“The gain is expected to be recognised in FY6/18F and it could bump up Sime Darby’s net profit by 2.6% or earnings per share by 0.9 sen per share. We have not incorporated this into our earnings forecasts pending the completion of the deal,” the research firm added.

Sime Darby’s original cost of investment in the land was RM1.1 million and said the net book value of the land in its books was RM30.2 million as at June 30, 2016.

“We are of the view that the selling price for the land is fair as it is based on market value,” CIMB Research said.

Sime Darby will use the proceeds from the disposal to fund strategic development projects by Sime Darby Property Bhd within the next 12 to 24 months, and for the payment of expenses in relation to the proposed disposal.

The firm maintained its target price of RM10.10 for the group, but expects the group’s share price to re-rate on its plans to separately list its plantation and property units and given improving earnings prospects on better crude palm oil and coal prices.

“Key risks are lower FFB (fresh fruit bunches) output and lack of corporate actions to boost its valuations,” the firm said.