Sime Darby has entered into conditional sales for its 70% stake in Jining Ports, China for a net proceed of RM182.7m (disposal losses of c. RM8m), which will be completed by end 2020. We are relatively positive on the announcement as part of group’s strategy to exit non-core port operations and concentrate on industrial and motor segments. The loss on disposal from the exercise forms 0.7% of our FY21 forecast, but we would deem this as an EI. Maintain BUY recommendation on Sime Darby with unchanged TP: RM2.68 based on 10% discount to SOP: RM2.98.

NEWSBREAK

Sime Darby has entered into conditional agreement with Jining Port and Shipping Development Group (JPSDG) for the disposals of its 70% stake in Jining Ports (consist of Longgong, Taiping and Yuejin) for total proceeds of RM182.7m ( based on 1.01x of NBV as at Jun 2020). The disposal exercise is expected to be completed by the end of 2020. The cash proceeds from the disposal exercise will be staggered over the next 3 years (backed by bank and corporate guarantees), with bulk of the payments in the 3rd year.

HLIB’s VIEW

Positive. We are relatively positive on the disposal exercise, in line with Sime Darby’s long term strategy of disposing its non-core assets while expanding its core segments of industrial equipment and motor. The group is expected to record c. RM8m loss on disposal from the exercise. The next large non-core asset in Sime Darby’s book is the Wei Fang port with net book value of c. RM1bn.

Forecast. Unchanged. Contribution from Jining Ports is relatively immaterial to the group. The loss on disposal from the exercise forms 0.7% of our FY21 forecast, but we would deem this as an EI.

Maintain BUY, TP: RM2.68. We maintain BUY recommendation with unchanged TP of RM2.68, based on unchanged 10% discount to SOP of RM2.98, as we expect Sime Darby will continue to leverage on Australia’s mining sector and recovery of China market to sustain earnings. We also expect a continued decent dividend yield of 4.3% for the year

Source: Hong Leong Investment Bank Research - 2 Dec 2020