SIME is disposing off a piece of land measuring 1,382.2 acres in Malaysia Vision Valley (MVV), Negeri Sembilan, to MATRIX for RM460m cash. The disposal will result in a oneoff gain of RM412m. The exercise is slightly earnings accretive. The interest savings from the proceeds will boost its FY24F earnings by 2%. The proceeds will also reduce SIME’s net gearing from 0.23x to 0.22x. We maintain our forecasts pending the completion of the deal. Maintain OUTPERFORM with a SoP-derived TP of RM2.60.

Disposing off Malaysia Vision Valley land for RM460m cash. SIME is selling its Malaysian Vision Valley land measuring 1,382.2 acres in Labu, Negeri Sembilan to MATRIX via a Negeri Sembilan state-owned company, NS Corporation, for RM460m cash. The land plot was part of a 8,796-acre land parcel of which SIMEPROP had been granted by SIME a call option to acquire pursuant to the demerger exercise between SIME, SIMEPLT and SIMEPROP in 2017.

Fair price. The transaction values the land at about RM13psf. In comparison, SIME sold a parcel of MVV land to SIMEPROP for RM8.46psf last year while other agricultural land parcels in proximity are listed ranging from RM9.5psf to RM14.9psf. The land is currently gazetted as agricultural land with development potential which has been planned to be part of Malaysia Vision Valley 2.0. MATRIX announced that it plans to build a township with a gross development value of RM7b that is similar to its Sendayan brand of development.

Impact on earnings and gearing. SIME will book in a one-off gain of RM412m. The exercise is earnings accretive - interest savings from the proceeds will boost its FY24F earnings by 2%. The proceeds will also reduce SIME’s net gearing from 0.23x to 0.22x. We maintain our forecasts pending the completion of the deal.

We like the stock for: (i) robust growth for its core business operation riding on economic recovery, and (ii) major brands under its stable ensuring sustainable profit growth (such as BMW, Caterpillar). The stock also offers an attractive dividend yield of >5%. Maintain OUTPERFORM with SoP-derived TP of RM2.60. There is no adjustment to our TP based on ESG for which it is given a 3-star rating as appraised by us (see Page 5).

Risks to our call include: (i) governments cutting back on infrastructure spending on austerity drive and/or a slowdown in the mining sector, hurting demand for heavy equipment, (ii) consumers cutting back on discretionary spending (particularly big-ticket items like new cars) amidst high inflation, and (iii) persistent disruptions (including chip shortages) in the global automotive supply chain.

Source: Kenanga Research - 25 Aug 2022