Sime Darby Bhd, the world's largest listed producer of palm oil, soared on its debut on the Malaysian bourse yesterday, reaching a 36 percent premium on its indicative price.
The new entity was created from the merger of three palm oil concerns -- Sime Darby, Golden Hope and Kumpulan Guthrie -- and is now the largest counter on the stock market, topping leading bank Malayan Banking Bhd.
Sime Darby's indicative price was fixed at 8.90 ringgit (US$2.60) a share, but it opened at a premium of 26 percent or 11.20 ringgit and jumped to a high of 12.10 ringgit in early trade. It ended the morning at 11.10 ringgit.
"Today is a crucial day for us," Sime Darby chairman Musa Hitam told reporters at the stock exchange.
"Happily for us, the market has indicated their confidence in us. Now it is time to deliver," he added.
Sime Darby controls some 8 percent of global palm oil production, which is enjoying soaring prices in tandem with the cost of crude oil, which has boosted demand for biofuel made from the commodity.
DBS Vickers analyst Ben Santoso said that the market dominance of the firm, which derives 43 percent of its revenue from plantations, would give it some influence over palm oil supply, and that its diversity was also a strength.
"Sime Darby's earnings are relatively ... stable compared to pure-play plantations, given that 40 percent of its earnings comes from other divisions, that is property, motor vehicle and heavy equipment distribution, power and utilities," he said.
A top Sime Darby official told reporters after the relisting that it had no immediate plans to enlarge its area under plantation and would instead concentrate on its five core businesses.
"We will focus on what we have. We want to cut costs and increase yields. That is the key in the whole merger program," he said on condition of anonymity.
Malaysia, the top producer of palm oil, last week said it would allow market forces to determine crude palm oil prices. It ruled out any attempt to control rising prices caused by strong demand.
Crude palm oil futures contracts trading on the Malaysian derivatives market crossed the 3,000 ringgit (US$909) mark for the first time this month, with the January contract hitting an all-time high of 3,013 ringgit.
Palm oil prices now average 2,500 ringgit per tonne.
Sime Darby is expected to have total annual revenue of more than 26 billion ringgit, a workforce of more than 107,000 and combined plantation land of about 600,000 hectares in Malaysia and Indonesia.
Aseambankers Malaysia Bhd, a local brokerage house, said Sime Darby "is set to ride on the on-going commodity boom" and is likely to be able to cut costs.
"Cost savings and revenue synergies to the tune of 400 million to 500 million ringgit per annum arising from the merger of the companies will allow Sime Darby to explore new avenues for aggressive growth," it said.
The Sime Darby official in charge of business development said that its involvement in the 6 billion ringgit Bakun dam project was "investing in the future" amid rising oil and coal prices.
Sime Darby has secured the contract to build the 2,400-megawatt Bakun hydroelectric dam in Sarawak in east Malaysia, as well as to lay undersea cables from the dam to peninsular Malaysia.
Sime Darby was initially to be renamed Synergy Drive, but on Wednesday the firm said it would keep the well-known name.
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