Highlights

Sime Darby and AH Holdings Health Care (AHHC, a whollyowned subsidiary of Ramsay Health Care) proposed to set up a JV entity (which will be named as Ramsay Sime Darby Health Care).

Under the agreement:

1. Sime Darby will inject its healthcare and education business in return for an initial stake of 75.7% in the new JV, and and AHHC will inject its Indonesian healthcare business into the JV for an initial stake of 24.3%, subject to adjustments; and

2. Under the shareholder equalization agreement, Sime Darby will sell 25.7% stake in the new JV (out of the 75.7% initial stake) to AHHC for RM390m (of which AHHC will pay Sime Darby RM187.3m on completion date, and the remaining sum of RM202.7m over a 3-year period), resulting in both parties holding 50% stake each in the new JV entity.

The proposed JV is expected to complete by 30 Jun 2013. No mention if the new JV would be eventually listed in the stock exchange. Financial Impact

Other than the disposal gain of RM340m, earnings impact to the group is minimal. Healthcare only accounted for only 0.4% of the group’s PBIT in FY12.

Pros/Cons

We are positive on the latest development as it allows Sime Darby to: (1) Focus on its core businesses (healthcare ranks the lowest in terms of earnings contribution to the group); (2) Capture the growing healthcare business in the SEA region by leveraging on Ramsay’s expertise; and (3) Monetise its investment (with an expected disposal gain of RM340m).

Earnings Forecasts

Maintained, given healthcare segment’s insignificant contribution to the group and we consider the disposal gain as non-core.

Risks

• Earlier-than-expected recovery in edible oil demand and prices; and
• Weather uncertainties revisit, which would have a positive impact edible oil prices.

Rating

HOLD

• Positive – Strong balance sheet.
• Negatives – (1) Weak global economic outlook, coupled with the impending excess supply of CPO will affect both demand and prices of CPO; (2) Cooling economic activities in China and Australia may have an adverse impact on Sime Darby’s earnings; and (3) Overseas expansion risk.

Valuation

• SOP-derived TP of RM9.08 remains unchanged

Source: Hong Leong Investment Bank Research - 27 Mar 2013