Highlights

Sime Darby announced its first foray into the Vietnamese automotive market, via the acquisition of an effective 90% stake in Europe Automobiles Corporation (EAC) for RM114m.

EAC holds the distribution rights of BMW and MINI vehicles in Vietnam.

The acquisition is expected to complete by 8 Nov 2013, subject to certain conditions including the consent of BMW Asia Pte Ltd and BMW AG.

Comments

Positive, as this allows Sime Darby to penetrate growing luxury automotive industry in Vietnam (whereby car-topopulation is still low at 18/1,000 vs. Southeast Asia’s of 50- 80/1,000) and an immediate foothold in the Vietnamese automotive market. Nevertheless, near-term earnings impact on this acquisition will be insignificant given Sime Darby’s large earnings base.

Impact to balance sheet is insignificant. The acquisition will only raise Sime Darby’s net debt and net gearing from RM5.6bn and 0.206x (as at 30 Jun 2013) to RM5.7bn and 0.21x respectively.

Earnings Forecasts

Maintained, pending further update in the upcoming results briefing.

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

Maintain SOP-derived TP of RM8.73 (see Figure 1).

Source: Hong Leong Investment Bank Research - 4 Nov 2013