Sime Darby is acquiring 3 luxury car dealerships (involving BMW, MINI, Volkswagen, Jaguar and Land Rover) in Sydney, Australia from Inchcape Australia Limited for a consideration of AUD112m (RM321m), which will be completed by Dec 2019. We are relatively neutral on the announcement as we do not expect material contributions from the dealerships towards Sime Darby’s large earnings base. Maintain HOLD recommendation with unchanged TP: RM2.35 (based on 10% discount to SOP: RM2.60).

NEWSBREAK

Sime Darby has announced the acquisition of business assets and properties of 3 luxury car dealerships for a consideration of AUD112m (RM321m) from Inchcape Australia Limited, which will be funded through external borrowings. The acquisition exercise is expected to be completed by Dec 2019.

The dealerships represent BMW, MINI, Volkswagen, Jaguar and Land Rover marques. The proposed acquisition is aligned with Sime Darby’s strategy to strengthen its Motor segment in Australia.

HLIB’s VIEW

Neutral. We are relatively neutral on the acquisition exercise as we do not expect material contributions from the new dealerships when compared to Sime Darby’s large earnings base of RM956m for FY20 and RM1,004m in FY21. Nevertheless, the dealerships may enhance the group’s relationship with BMW group and JLR group, and potentially provide operation synergies with its existing motor dealerships in Australia. Note that Sime Darby has existing dealerships for BMW and MINI in Australia.

Forecast. Unchanged.

Maintain HOLD, TP: RM2.35. Maintain HOLD recommendation with unchanged TP of RM2.35, based on 10% discount to SOP of RM2.60. Sime Darby is expected to continue leveraging on the booming coal mining industry in Australia, while other automotive and industrial segments in China and South East Asia faces stiff competition, cautious consumer sentiment and trade war risks.

Source: Hong Leong Investment Bank Research - 12 Sept 2019