12/01/2013 (Bernama) - Moody's Investors Service has assigned a senior unsecured issuer rating of A3 to Sime Darby Bhd (Sime Darby) with a stable outlook rating.

This is the first time Moody's has assigned a rating to Sime Darby in recognition of the strong cash flow generated by its core oil palm plantation business which has a long-established operations in Malaysia and Indonesia.

The remaining 45 per cent to 50 per cent of earnings before interest and taxes (EBIT) is primarily derived from its industrial business - the supply of heavy equipment to the coal mining and construction sectors, with a focus on Australasia and China - and its motors business - a blend of car assembly, distribution and dealerships with a focus on high-end cars in China, Malaysia, Singapore and Hong Kong.

Alan Greene, Moody's Vice-President (Senior Credit Officer) said:"Sime Darby is the largest listed palm oil plantation company and it is well-balanced in terms of upstream output and downstream refining and oleochemical capacity and its crop yields are among the best in the industry.

"Relative to other agribusinesses, the credit profile of palm oil is attractive given its position as the lowest cost vegetable oil, its high resistance to pests and diseases and the relative consistency of output over a period of 10 to 15 years once the trees reach maturity."

Greene, who is also Moody's Lead Analyst for Sime Darby, said palm oil was a traded commodity and crude palm oil prices exhibited volatility, as well as, cyclicality and seasonality, although recent low prices have remained well above cash costs of production.

Sime Darby's diversification of revenues by geography is well-balanced with Malaysia, Australasia and China accounting for 69 per cent of FY2012 revenue.

While the customer concentration of Sime Darby's businesses is low, its industrial division and its motors division depend on maintaining their supply relationships with Caterpillar and BMW, respectively.

The company's importance to Malaysia is also reflected in its current shareholding pattern which includes government linked investment companies.

As at Dec 31, 2012, the equity was 52.3 per cent held by Permodalan Nasional Bhd (PNB), both directly and through unit trust schemes managed by PNB, and 11.9 per cent by Employees Provident Fund.

"Although we do not regard Sime Darby as a government-related issuer, we deem systemic support from Sime Darby's key shareholders to be strong and the rating reflects the importance of Sime Darby to the Malaysian economy and its savings programmes," he said.

The rating outlook is stable reflecting the strong current credit profile and Moody's expectation that a more aggressive growth strategy coupled with management's commitment to a prudent financial policy can be accommodated in the rating in the near to medium term.

The rating could be upgraded if the growth strategy is delivered in a conservative fashion or if cash generation is particularly buoyed by CPO prices returning back to the high levels seen in early 2011, resulting in an early decline in net debt levels.

Sime Darby, a Malaysian listed conglomerate with a current market capitalisation of over US$18 billion, recorded revenues of over US$15 billion in the year ended June 2012.