PNB does some Sime shopping, is it bargain hunting?

Permodalan Nasional Bhd (PNB) has raised its stake in the country’s largest conglomerate Sime Darby Bhd with the acquisition of 170 million shares, or a 2.8% stake, on June 23.

According to Sime Darby’s filing on shareholding changes to Bursa Malaysia Securities, PNB now has 880.98 million shares, or a 14.66% stake, in Sime. It had a 11.83% stake in the group just a week earlier, on June 16.

Could this be a sign that the fund thinks the worst is over for the conglomerate that has been thrust into the spotlight for its large energy and utilities (E&U) related losses?

According to analysts, there are two possible reasons for this move. “Perhaps PNB thinks Sime’s stock has been oversold and sees value in it. On the other hand, it could also be buying the stock to prevent deterioration in value,” said a head of research at a local investment bank.

“But the market is still waiting for the results of the report before we can put a proper valuation to the stock”.

Sime’s chairman Tun Musa Hitam had said a fortnight ago that the outcome of the forensic investigation was expected to be revealed in August.

The majority of analysts covering Sime have a hold or sell call on the stock, with only a handful calling a buy. Target prices range from RM7.60 to RM10.20.

The counter ended at RM8.02 yesterday, down eight sen.

The stock was battered to as low as RM7.60, down 12% from its close of RM8.65 before news broke on the group’s cost overruns of over RM1 billion. The stock traded as high as RM13.10 in late-2008.

In fact, news did break on the possible losses as far back as two years ago but the company had denied it. Reports of the possible losses surfaced on the Internet and news media in 2008, but were followed by denials.

Sime finally came clean last month on the negative impact of provisions totalling RM964 million for 3QFY10 ended June 30. They comprise RM200 million from its Qatar Petroleum (QP) project, RM159 million from its Maersk Oil Qatar (MOQ) project, RM155 million from MOQ’s marine project and RM450 million from the Bakun hydroelectric project. Total provisions for these four projects have amounted to RM1.3 billion.

The additional losses were discovered by a board work group set up in October last year to investigate the E&U division, following its results in FY09.

Over two weeks ago, Sime appointed Felda Holdings Bhd group managing director Datuk Mohd Bakke Salleh as its president and group chief executive-designate.

Bakke’s appointment, albeit still tentative, came a month after Sime’s former boss Datuk Seri Ahmad Zubir Murshid was asked to take a leave of absence following the huge cost overruns and project losses at the E&U division.



This article appeared in The Edge Financial Daily, June 30, 2010.