Sime Darby has announced the disposal of 760 acres MVV land to Sime Darby Property for RM280m cash consideration. The group will recognise a disposal gain of RM250m from the exercise. We are positive on the disposal in line with the group’s strategy to exit non-core assets and concentrate on industrial and motor segments. The disposal price is also higher than that imputed in our SOP valuation. Maintain BUY recommendation on Sime Darby with unchanged TP: RM2.68 based on 10% discount to SOP: RM2.97.

NEWSBREAK

Sime Darby has entered into a Sales & Purchase agreement with Sime Darby Property Bhd for the disposals of 760.12 acres plot of Malaysia Vision Valley land (MVV) for a cash consideration of RM280m (translating into RM8.46 psf). The deal is expected to complete by Jan 2022. Sime Darby is expected to recognise a disposal gain of RM250m from the exercise.

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. Recall Sime Darby owns 8,796 acres of MVV land during the group restructuring exercise (completed back in Nov 2017) and had entered into 5 +3 years agreement with Sime Darby Property to provide right of first refusal (ROFR) to the latter. The current exercise was prompted by a third party offer for a larger same land plot 1,180.57 acres for RM386m (RM7.86 psf) and Sime Darby Property chose to exercise its ROFR. We believe there will be accelerating demand for MVV land in coming years and Sime Darby is in a strong position to monetise its remaining MVV land bank. The implied value of RM8.46 psf is also higher than our SOP assumptions of RM6.53 psf (RM2.5bn for 8,796 acres). We do not discount potential special dividend payout from the disposal exercise.

Forecast. Unchanged. We deem the disposal gain of RM250m 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 RM2.97, as we expect Sime Darby to continue leveraging 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 - 28 Oct 2021