Sime Darby Is Acquiring SEH for a Cash Value of AUD104m (RM327m), Which Will be Completed by August 2021. We Are Positive With the Acquisition as SEH Will Further Complement and Strengthen Sime Darby Market Position in Australia. Nevertheless, We Reckon the Additional Contribution Would be Marginal Towards Sime Darby’s Large Earnings Base. Maintain BUY Recommendation With Unchanged TP: RM2.68 (based on 10% Discount to SOP: RM2.98).

NEWSBREAK

Sime Darby has announced to acquire 100% Salmon Earthmoving Holdings (SEH) in Australia for cash consideration of AUD104m or RM327m (free of debt), which will be mainly funded through external borrowings. The acquisition exercise is expected to be completed by August 2021, subject to approval from the Foreign Investment Review Board of Australia.

SEH is a leading provider of rental and maintenance services in Australia servicing the civil construction, agricultural and mining sectors. The company is established for more than 70 years, with over 280 pieces of large plant and equipment on offer. Currently, SEH rents and supports a complete range of Caterpillar and other heavy machinery (e.g. Hitachi, Komatsu, Mack and Isuzu) used in the mining and construction sectors providing high quality plant for short or long-term hire throughout Australia.

HLIB’s VIEW

Positive. We are overall positive on the proposed acquisition exercise, as SEH will complement and strengthen Sime Darby’s existing industrial business segment in Australia. The acquisition will allow Sime Darby to expand its market into civil construction sector (currently Sime Darby is concentrated more into the mining sector) and also into New South Wales region (currently Sime Darby focuses more into the Queensland region). Sime Darby will continue to lookout for more pockets of acquisitions to complement and enhance its core segments i.e. industrial and motor business in existing geographical regions.

Fairly valued. We understand that the acquisition price of RM327m is valued at c. 1x PB and 10x PE, which is comparatively cheaper than current Sime Darby’s valuation of 1.0x PB and 12.9x PE. Nevertheless, the contribution will be relatively immaterial to the current group’s large earnings base of RM1.1-1.2bn.

Forecast. Unchanged.

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 to continue leveraging on Australia’s mining sector and recovery of China market. We also expect a continued decent dividend yield of 6.4% for the year.

Source: Hong Leong Investment Bank Research - 8 Jul 2021