Sime Darby is acquiring Onsite for a cash value of AUD635m (RM1.9bn), which will be completed by 4QFY23. We are positive with the acquisition as Onsite 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: RM2.70 (based on 10% discount to SOP: RM2.99).

NEWSBREAK

Sime Darby announced it will acquire 100% stake in Onsite Rental Group (Onsite) in Australia for cash consideration of AUD635m or RM1.9bn (free of debt), which will be fully funded through external borrowings. The acquisition exercise is expected to be completed by 4QFY23, subject to approval from the Foreign Investment Review Board of Australia.  

Onsite is the 2nd largest business-to-business (B2B) equipment rental service provider with market share of 8.4% in Australia, servicing primary the construction and mining sectors. The group has 39 branches throughout the country with extensive presence in the Western Australia and Queensland. The rental assets that Onsite offers spans across access, power and tool equipment, site accommodation, materials-handling, industrial tools and small-scale earthmoving and compaction (e.g. Genie, JLG, Atlas Copco, JCB, Denyo).

HLIB’s VIEW

Positive. We are overall positive on the proposed acquisition exercise, as Onsite will complement and strengthen Sime Darby’s existing industrial business segment in Australia. The acquisition will allow Sime Darby to expand offerings to their existing clientele and further expand into the construction sector (complementing previously acquired Salmon Earthmoving in 2021). Sime Darby will also leverage onto Onsite to take advantage of the infrastructure boom market while establishing new presence on the East Coast of Australia.

Fairly valued. Management guided the PBIT contribution to be AUD50-70m while the cost of financing to be AUD40m per annum. We understand that the acquisition price of AUD635m is valued at c.5.2 EV/EBITDA (FY22), comparatively cheaper than Sime’s 6.4x. We estimate the net contribution to be AUD7-21m (RM20-60m) per annum, it will only contribute additional 1-5% to Sime’s large earnings base of RM1.1- 1.2bn.

Forecast. Unchanged.

Maintain BUY, TP: RM2.70. We maintain BUY recommendation with an unchanged TP: RM2.70, based on unchanged 10% discount to SOP of RM2.99. Sime Darby will continue to leverage onto the strong momentum of its Industrial segment, driven by mining in Australia in FY23. We also expect a continued decent dividend yield of 5.2- 6.1% for FY23-25f, following cash flow proceeds from the disposal of Weifang Ports, Jining Ports and plots of MVV lands.

Source: Hong Leong Investment Bank Research - 3 Mar 2023