- We maintain HOLD on Sime Darby, with an unchanged SOP fair value of RM9.00/share.

- Japan's Aeon Co Ltd is interested in buying the Malaysian operations of Britain's Tesco PLC, valued at about 900mil pounds, according to a Reuters report yesterday.

- Set up in 2001, Tesco Stores (M) S/B is a JV between Tesco PLC (70%) and Sime Darby (30%). Tesco owns and operates over 40 hypermarkets in Malaysia.

- Citing people familiar with the matter, the newswire said Aeon has informally discussed its interest with corporate advisers and that the process is still at an early stage.

- Buying Tesco's operations would make Aeon Malaysia the biggest hypermarkets group, with 28 hypermarkets in the country. A Sime Darby spokesperson told the newswire that the group will always evaluate opportunities that may enhance shareholder value.

- Existing restrictions on foreign ownership of hypermarkets include a requirement of a 30% bumiputera equity.

- If it pans out, Sime Darby could use the proceeds from the disposal of its 30% stake in Tesco Malaysia to part-finance the recent acquisition of New Britain Palm Oil Ltd.

- This could be positive from a cash flow point of view, and a disposal of its stake in Tesco Malaysia would be in line with a disposal of a non-core business.

- Tesco Malaysia posted a 73% rise in net profit to RM82mil in FY14 from RM48mil previously. As at 30 June, 2014, Tesco Malaysia’s net assets amounted to RM315mil.

- We keep our numbers. Maintain HOLD, amid the downturn in the plantation and industrials divisions.

Source: AmeSecurities Research - 8 Jul 2015