• Sime Darby’s wholly-owned Kumpulan Sime Darby (KSDB) disposed of 1,382 acres of its Malaysia Vision Valley (MVV) land for a cash consideration of RM460mil (RM7.70/sqft) to NS Corporation. This is a continuation of the group’s efforts to monetise its non-core assets after making a full exit from the ports business earlier this year.

• KSDB would record a net gain of RM57mil from the disposal while at the group level, Sime Darby is expected to record a higher net gain of RM412mil after taking into account the reversal of consolidation adjustments, which could be due to offsetting intragroup borrowings. According to the company, the lower net book value at the Sime Darby level is due to consolidation adjustments for an intragroup transaction which includes the demerger exercise restructuring that took place in 2017.

• However, the reversal adjustments would not increase the retained profits available for distribution to shareholders. The transaction is estimated to be completed in FY24 (FYE June). The proceeds will be utilised to meet the group’s working capital requirements, capital expenditure, and/or repayment of borrowings.

• Sime Darby has also entered into a sale and purchase agreement to dispose of 760 acres of the MVV land for RM280mil (RM8.40/sqft) to Sime Darby Property in October 2021. The disposal is expected to be completed in FY23.

• Recall that as part of the demerger exercise undertaken by the group, Sime Darby acquired the entire MVV land of 8,796 acres with an original cost of investment of RM2.5bil from Sime Darby Plantation to set off its debt owed to Sime Darby.

• The valuation of the land is broadly in line with our estimate; therefore, we make no changes in our core earnings forecasts and fair value of RM2.88. We maintain our BUY recommendation on Sime Darby.

Source: AmInvest Research - 25 Aug 2022