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Business

Sime Darby to spin off plantations, property businesses, list them each

KUALA LUMPUR (NewsRise) - Sime Darby, the world's largest palm oil company by acreage, plans to spin off its plantations and property businesses for separate listings on the Malaysian stock exchange, a move that analysts widely cheered.

The parent company will remain listed, focusing on industrial equipment, automotive, logistics and healthcare segments, Sime Darby said in an exchange filing. It will evaluate the implementation measures and indicative timelines for the listings, the company said.

"Each division is now stronger, strategically structured and better equipped to stand alone and be listed as pure plays," said Sime Darby Chief Executive Mohd Bakke Salleh. Shareholders will benefit from the growth potential in each of the three entities, he added.

Analysts said a separate listing will help perk up valuations of both Sime Darby and its businesses by eliminating the so-called conglomerate discount-- a situation when investors value a company that owns diversified businesses at less than the sum of its parts.

"We believe that the restructuring would create a much cleaner structure," said RHB Research Institute's analyst Hoe Lee Leng. "This would allow investors to choose between the businesses they would want to own and resulting in a value enhancement overall."

Sime Darby had said in November it could list its plantation business as it looks to monetise assets, in line with its several years' efforts to boost shareholders' value.

Sime Darby owns 988,599 hectares of plantation with over 600,000 hectares planted - the largest swathe in the world. The company's property division, meanwhile, has undertaken nearly two dozen townships and real estate projects as well as owning an additional 11,331 hectares.

The company sold some of its assets that include land and industrial properties and had earlier considered listing its automotive business, but shelved the plan following poor economic conditions and weak investor sentiment.

Some analysts, however, doubted the benefit of the restructuring, noting that Sime Darby's other units will likely fetch lower valuations than its mainstay plantation business that contributed more than one-third of its pre-tax profit the last financial year.

"We do not foresee any great value enhancement from splitting the unit and creating separate listings," said Ooi Mong Huey, an analyst with UOB Kay Hian. "Moreover, the rest of Sime's businesses are facing headwinds from a slowdown in demand."

Still, Sime Darby said the latest initiative will enable each business to pursue its own ambition with greater focus and tap into potential growth opportunities. The move isn't expected to cause any major disruption to Sime Darby Group's current operations, it noted.

"We have already identified new synergistic businesses of high potential to capitalise on the changing needs of our customers and to fully realise the potential of our existing businesses," Mohd Bakke said. "Shareholders will have much to look forward to."

Shares of Sime Darby ended Friday up 4.7% to 9.23 ringgit while the benchmark FTSE Bursa Malaysia KLCI closed 0.4% lower.

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