SIME is disposing off another huge tract of land in Malaysia Vision Valley (MVV), Negeri Sembilan to LEAP market-listed UNIWALL for RM445m cash. The disposal will result in a oneoff gain of RM399m. Interest savings from the proceeds will boost FY24F earnings by 2%. The proceeds will also shave 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 RM445m cash. SIME is selling another tract of land in Malaysian Vision Valley measuring 1,281.8 acres in Labu, Negeri Sembilan to LEAP market-listed Uni Wall APS Holdings Bhd (UNIWALL) via a Negeri Sembilan state-owned company, NS Corporation, for RM445m cash. The land plot was part of an 8,796-acre land parcel (5,372 acres unsold) of which SIMEPROP has 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 valued the land at about RM13psf. In comparison, SIME recently sold a parcel of MVV land to MATRIX at the same price of RM13psf 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. UNIWALL plans to build a high-tech industry hub called NS International Tech Park focusing mainly on aerospace, food and beverage (F&B), pharmaceutical and cosmetic industries, as well as a new central business district (CBD) for residential, commercial, regional office centres and a medical centre.

Impact on earnings and gearing. SIME will book in a one-off gain of RM399m. The exercise would be earnings accretive - interest savings from the proceeds will boost its FY24F earnings by 2% while 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 continue to like SIME for: (i) being a good proxy to the reopening of economies globally given its presence in both the industrial (heavy equipment) and consumer (automobile distribution) space, (ii) its long-standing distributorships with reputable global principals such as BMW and Caterpillar, and (iii) its decent dividend yield of >5%. Maintain OUTPERFORM with SoP-derived TP of RM2.60. There is no adjustment to our TP based on ESG 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 - 26 Sept 2022