Highlights

Sime Darby entered into a conditional share sale to acquire: (1) A 70% stake in LMM Holdings Pty Ltd (LMMH); and (2) A 70% of units in Brisbane BMW Unit Trust (BBUT) for A$22.7m (or RM66.5m).

Besides, Sime Darby also entered into property sale and purchase agreements to acquire 3 properties, which are necessary for the operations of the businesses for A$58m (or RM169.9m).

LMMH is the trustee of BBUT, which effectively operates BBUT’s BMW, MINI and Lamborghini motor dealership businesses in Brisbane, Australia. Dealership aside, LMMH also operates the business of BMW parts, panels and accessories.

The proposed acquisitions are expected to be completed by end Feb-14.

Sime Darby currently carries two motor marques in Australia, namely Peugeot and Citroen. The Australasia market accounted for 4.8% of Sime Darby’s motor segment’s PBIT in FY06/13.

Comments

Neutral, we expect insignificant near-term earnings from this acquisition 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 0.205x (as at 30 Sep 2013) to RM5.9bn and 0.21x respectively.

Earnings Forecasts

Maintained.

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 RM8.45 (see Figure 1) for now, pending a review in our CPO price assumption.

Source: Hong Leong Investment Bank Research- 3 Dec 2013