• The Maritime Court at Qingdao, Shandong Province, China has ordered Sime Darby Bhd’s 36.6%-owned joint venture (JV) company Weifang Port Services (WPS) Co Ltd to pay RMB711.0mil, equivalent to RM427.0mil, to local contractor CCCC Tianjin Dredging Co Ltd.

• The court has also ordered WPS to pay a late payment interest of RMB3.6mil (RM2.2mil). The total sum to be paid will be RMB714.6mil (RM429.2mil). Sime Darby announced that WPS intends to appeal against the decision.

• Tianjin Dredging was engaged to construct a 35.0K tonnes deadweight (DWT) main channel in Weifang, Shandong Province. The project was completed in November 2016 with a total cost of RMB1.17bil (RM706mil) and there was an outstanding sum of RMB711.0mil.

• In the worst-case scenario, this will impact Sime Darby’s P&L statement at the share of JV line, where a 36.6% of the full sum to be paid will be approximately RM157.1mil, which is 16.5% of Sime Darby’s FY20F core net profit. Sime Darby Group said that it may be making provisions in its next quarterly results to brace for the impact of the said legal case, if needed.

• As for now, our forecasts are maintained until we obtain further clarity on the official court appeal. We keep our HOLD call on Sime Darby with an unchanged SOP-based FV of RM2.57/share. We remain concerned on Sime Darby’s China operations amidst the ongoing tension from the US-China trade war which may further dampen the group’s motor division.

Source: AmInvest Research - 31 Jul 2019