• We maintain a BUY on Sime Darby, with a target price of RM11.20/share, based on a sum-of parts valuation and an implied PE of 16x for FY13F.

• Sime Darby has formalised a 50:50 JV with Australia's biggest private healthcare provider and Sydney-based Ramsay Health Care Ltd. They will inject their respective Malaysian and Indonesian healthcare operations into a JV company, Sime Darby Global Healthcare Sdn Bhd (SDGH), which will be renamed as Ramsay Sime Darby Health Care Sdn Bhd.

• Sime operates a medical centre in Subang Jaya, a specialist centre and a nursing and health sciences college, while Ramsay’s subsidiary AH Holdings Health Care Pty Ltd (AHHC) owns three hospitals in Indonesia.

• Via the issuance of shares by SDGH for the assets, Sime and Ramsay would initially hold 75.7% and 24.3% of the JV company. Subsequently, Sime will sell 25.7% of SDGH to AHHC for RM390mil, for a 50:50 JV. AHHC will pay RM187.3mil to Sime on the expected completion date by 30 June 2013, while the balance of RM202.7mil will be settled over a threeyear period. Sime will recognise a gain on disposal of RM340mil.

• Given the price of RM390mil for the 25.7% stake, the entire JV group, upon completion of the injection of assets, is potentially valued at RM1.52bil.

• Extrapolating from this, Sime’s healthcare division is valued at RM1.15bil (75.7% of RM1.52bil) – translating into an implied P/B ratio of 3.7x based on its net assets of RM309.8mil (30 June 2012) vs. the simple average of 4x FY13F for regional hospital groups. Note it would sell the 25.7% stake at a P/B of c.4.1x based on the combined net assets.

• For AHHC, the Indonesian assets to be injected to the JV are potentially valued at RM368.8mil (24.3% of RM1.52bil) – c.6.6x its net assets of RM56mil (Rp176.7 billion) as at 30 June 2012. For FY12, Sime healthcare posted a PAT of RM14.5mil, while Ramsay’s Indonesian assets posted a PAT of RM5.1mil (Rp16.1bil).

• While the transactions appear lopsided in favour of Ramsay, this partnership with the established group will give Sime a leg up towards nurturing the growth of its healthcare arm, particularly in view of the regionalisation of the move. Healthcare’s contribution to group earnings is small, representing 0.73% and 0.44% of FY12 revenue and operating income.

• Established in 1964, Australia-listed Ramsay is a global healthcare group operating 116 hospitals and day surgery facilities in Australia, the UK, France and Indonesia.

Source: AmeSecurities