• As part of the continuation of its strategy to unlock non-core asset values, Sime Darby’s wholly-owned Kumpulan Sime Darby (KSDB) is disposing 1,282 acres of its Malaysia Vision Valley (MVV) land for RM445mil (RM7.97/sqft) cash to NS Corporation.

• This is the third transaction after the sale of 760 acres (RM8.40/sqft) to Sime Darby Property on 27 October 2021 and the sale of 1,382 acres (RM7.70/sqft) to NS Corporation on 24 August 2022.

• Based on the net book value of the land of RM367mil, KSDB is estimated to record a net gain of RM88mil from the disposal - 7% of FY23F core net profit. Combined with the earlier 1,382-acre transaction, the cumulative proceeds of RM905mil will be utilised for the group’s future capital expenditure/investments (up to 50%) and payment of dividends (up to 15%) as well as working capital requirements and repayment of borrowings (up to 85%).

• Assuming a 15% proceed utilisation for dividend payment would translate into 2 sen/share or 1% yield, potentially raising from 3.4% to 4.4%. The transaction is estimated to be completed in FY24 (FYE June).

• Recall that as part of the demerger exercise undertaken by the group in 2017, 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 made no changes in our core earnings forecasts and fair value of RM2.88. Hence, we maintain our BUY recommendation on Sime Darby.

Source: AmInvest Research - 26 Sept 2022