• Maintain BUY with higher MYR2.75 TP from MYR2.55, 27% upside and c.6% FY23F (Jun) yield. In recent months, Sime Darby sold 2,664 acres of its Malaysia Vision Valley (MVV) land, as part of its efforts to monetise this non-core asset. Its recent sales, at 19% above cost, will fetch MYR905m, which Sime can use for investments, dividends, working capital, and repaying debt. We understand it is still in talks with more interested parties to sell the remaining 5,372 acres of its MVV land.

• Details of transactions. Last Friday, Sime announced the sale of 1,282 acres of its MVV land to NS Corporation for a consideration of MYR445m, implying MYR8/sq ft (psf). This comes shortly after Sime announced the sale of 1,382 acres of its MVV land on 24 Aug to NS Corp for MYR460m, implying MYR7.64 psf. Sime is expected to record net gains (including the reversal of consolidation adjustments) of MYR399m and MYR412m, totalling MYR811m, upon completion of sale in FY24 (Figure 3).

• Usage of proceeds. With total proceeds of MYR905m (MYR445m and MYR460m), Sime is expected to use up to: i) 50% for capex and investments, ii) 15% for dividends, and iii) 85% for working capital requirements and repayment of borrowings. We think Sime may reinvest into its core motor and industrial businesses, potentially acquiring adjacent and complementary assets. The maximum 15% distribution of proceeds implies a potential DPS of 2 sen (FY23F DPS: 12 sen).

• Continued divestment of non-core assets. Since acquiring 8,796 acres of MVV land from Sime Darby Plantation (SDPL MK, NEUTRAL, TP: MYR4.60) in 2017 as part of Sime’s demerger exercise, it has undergone three transactions to sell its MVV land (Figure 3). This leaves Sime with 5,372 acres of MVV land, which we believe the group will continue to sell, as it is currently in talks with more interested buyers.

• Post-transaction, we maintain our core-earnings forecast, as the gains from the sale of land are non-core. We also maintain our DPS estimate, as we did not bake in the potential dividend, to be conservative. However, we raise our TP to MYR2.75, as we adjust the MVV land value in our SOP- valuation to reflect: i) Proceeds from recent MVV land sale and ii) 50% discount to RNAV of the unsold MVV land. The 50% discount reflects the uncertainty in Sime’s ability to monetise its MVV land in the near future at the market price of MYR8 psf. Previously, we valued the MVV land with a 90% discount to RNAV. As its ESG score is on par with the country median, we ascribe a 0% ESG premium/discount.

• BUY for its dividend yield, resilient Australasia industrial segment, potential special dividends from disposal of its non-core assets, and growing fleet of EV offerings.

• Key risks include weaker-than-expected Australasia industrial margins, softer-than-expected car sales across its markets, and longer-than-expected downturn in China.

Source: RHB Research - 26 Sep 2022