Sime Darby has entered into share sale agreements to dispose all stakes in Weifang Ports, China for a cash consideration of RMB1.9bn (RM1.3bn). We are overall positive on the announcement, as the group stays focused on its industrial and motor segments and exits non-core assets. Sime Darby will recognise net gain of RM35m from the exercise. The group is also in talks to monetize its MVV land bank and RSDH JV. Maintain BUY recommendation on Sime Darby with unchanged TP: RM2.60 based on 10% discount to SOP: RM2.89.

NEWSBREAK

Sime Darby has entered into 7 share sale agreements (SSAs) with SPG Bohaiwan Port Group (SPG) for the disposals of its stakes in Weifang Port entities for a total cash consideration of RMB1.9bn (RM1.3bn). SPG is a China state owned enterprise, responsible for consolidating port assets in the western part of the Bohai economic rim in Shandong province (where Weifang Ports is located). Sime Darby will receive 90% of cash proceeds post conclusion of the SSAs and remaining 10% by the second anniversary of the completion date of the SSAs (backed by bank guarantee). Sime Darby will also recover back RMB541m (RM357m) outstanding shareholder loans and interest owning from Weifang Ports. The cash proceeds will be utilized for future investment opportunities, capital expenditure and/or repayment of short term borrowings.

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. The group is expected to recognise a net gain of c.RM35m from the disposal exercise (expecting impairments of RM60-70m, netting with forex gain of c.RM100m in coming quarters). The next large non-core asset in Sime Darby’s book is the MVV lands, measuring c. 8k acres with a value of c. RM3bn (based on previous transacted price to Sime Darby Property). Sime Darby is also currently in talk with IHH for the disposal of its 50% JV stake in Ramsay Sime Darby Hospital, valued at USD1.35bn (RM5.9bn) for 100% stake.

Forecast. Unchanged. Contribution from Weifang Ports is relatively immaterial to the group, at 0.5-1.1% to the group’s PBIT for FY22-24.

Maintain BUY, TP: RM2.60. We maintain BUY recommendation with an unchanged TP: RM2.60, based on unchanged 10% discount to SOP of RM2.89. While there are ongoing global risks in the near term, Sime Darby would still be able to ride through the choppy waves and present sustainable earnings into FY23. We also expect a continued decent dividend yield of 5.3% for the financial year.

Source: Hong Leong Investment Bank Research - 5 Jul 2022