If you have followed our postings on the Sime Darby demerger, you would know that we are quite bullish about the prospects of Sime Darby Plantation. If u missed our postings please refer to the link below:

Part 1 - Sime Darby demerger - https://klse.i3investor.com/blogs/wiz_of_finance/140175.jsp

Part 2 - SIme Darby demerger - https://klse.i3investor.com/blogs/wiz_of_finance/140393.jsp

SDPLT shares finally rebounded today after a steep decline in the previous few trading days. It even started the day negative before rebounding strongly. We believe that there is still much upside to this. We premised this on our estimation of full year financial result, the estimated dividends for this counter and also the relative valuation to other big plantation players.

1) Estimated Dividends

In SDPLT's prior announcement, management has indicated that SDPLT will declare dividends of at least 50% of its earnings. Based on our estimation of the full year earnings, the dividends could potentially be RM0.16 per share which leads to a dividend yield of 3% at the current share price. This is a reasonable dividend yield for a blue chip counter. 

2) Relative valuation

Based on our estimated full year earnings above and relative to the Trailing PE (Based on historical) and Forward PE (based on estimated earnings), we can see that SDPLT has some upside. Please note that even excluding the one-off in our estimation (which is a very prudent assumption seeing as this one-off has been realised and is already reflected in the books), the average relative valuation indicates that SDPLT is currently trailing its peers in its valuation. We have also received some comments about how high the PE ratio that we are using is. We understand the concerns but one has to compare the PE ratios based on specific industries. As evident below, blue chip plantation counters tend to be valued at a relatively high range of PE (i.e. above 20x). Tech companies would definitely be valued at even higher PE ratios. 

Stay tuned to this page as we will be doing an in-depth analysis on SDPROP as well in our upcoming post. We shall dig deeper into the numbers and see if the price now is really undervaluing the company.

Disclaimer: This is not a buy call. Please do your own research before investing.

Cheers,

Wiz_of_Finance

If you are interested in contacting me for more analysis, please contact me at wiz.of.finance@gmail.com