Sime Darby has disposed its 10.89% investment stake in E&O for a cash consideration of RM93.5m (RM0.60/share or 0.5x P/B). The group will recognise an impairment write back of RM21.5m from the exercise. We are relatively positive on the announcement as part of group’s strategy to exit non-core business and concentrate on industrial and motor segments. 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 a Sales & Purchase agreement with Amazing Parade Sdn Bhd (owned by Datuk Tee Eng Ho & family of Kerjaya Prospect group) for the disposals of its 10.89% investment stake in E&O for a cash consideration of RM93.5m (based on RM0.60/share or 0.5x P/B as at Dec 2020).

HLIB’s VIEW

Positive. We are overall 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. Over the years, the group has written down its investment in E&O to only RM72m and is expected to record a RM21.5m impairment write back from the disposal exercise. The next large non-core asset in Sime Darby’s book is the Wei Fang port with net book value of c. RM1bn. We do not discount further special dividends from the disposal proceed.

Forecast. Unchanged as the group does not record any material contribution from its investment in E&O.

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 - 29 Mar 2021