Highlights

• Sime Darby (Sime) has announced 50% stake disposal in Weifang Sime Darby Liquid Terminal (WSDLT) to Dragon Crown Group Holding Limited (Dragon Crown) for a total cash consideration of RMB60.85m (equivalent to RM39.15m).

• WSDLT's primary activities are construction, management and operation of Weifang Liquid Terminal at Weifang Port.

• Dragon Crown is an integrated liquid terminal services provider in the PRC, specialising in the storage and handling of liquid chemical products using its dedicated pipelines and storage terminals. It is also a listed company in Hong Kong Stock Exchange. Comments

• We are positive on this stake disposal as it will help Sime to accelerate the growth of bulk liquid business in Wei fang operation by leveraging on the strength of Dragon Crown. During the previous Q&A session with Sime Darby, management mentioned thei r interest to focus more on liquid chemical cargo that offer higher tariff rate than other products for its Weifang Port operation.

• The disposal is expected to be completed within 2HFY16 and will not have signi ficant impact to its earnings. Earnings contribution from its energy and utilities division is relatively small (about 3% for FY16F). Earnings

Forecasts

• No change to our earnings forecast.

Risks

• Sharp fall in FFB output and/or palm product prices at the plantation division;
• Prolonged weak demand for mining equipment; and
• Delay in property launches.

Rating

HOLD

Positives

• Strong balance sheet.

Negatives

• (1) Cooling economic activities in China and Australia may have an adverse impact on Sime Darby’s earnings; and (2) Overseas expansion risk.

Valuation

Maintain HOLD with unchanged target price of RM7.10 based on SOP.

Source: Hong Leong Investment Bank Research - 2 Feb 2016