This is as the divestment is in line with the group’s portfolio rebalancing and streamlining of core business
by S BIRRUNTHA / pic by AFP
RESEARCH houses are positive on Sime Darby Bhd’s divestment of Weifang Port Companies, in line with its portfolio rebalancing and streamlining core business.
Public Investment Bank Bhd (PublicInvest Research) said it maintains a positive stance as the disposal will help to unlock value of its non-core assets within the group and strengthen its balance sheet.
The research house added that Weifang Port is the final non-core asset within the group’s logistic division after the disposal of Weifang Water Investment Co Ltd and Jining Ports in 2018 and 2020, respectively.
“The disposal is in line with the group’s efforts to streamline its portfolio and redeploy capital to support the growth of its core business, industrial and motors.
“Sime Darby is estimated to record a marginal net gain on disposal of RM35 million.
“Valuation-wise, we view the disposal price of approximately 0.98 times price-to-book value (P/BV) (based on net BV as at March 31, 2022) as fair, in-line with our sum-of-parts (SOP) based valuations,” it said in a note today.
The research house noted that it makes no adjustments to its earnings forecast as the disposal will have minimal impact on its financial year 2022 and 2023 forecast (FY22/23F) earnings.
It maintained its ‘Neutral’ call on Sime Darby with an unchanged SOP-based target price (TP) of RM2.32.
Sime Darby announced the disposal of its Weifang Port in China by its indirect wholly owned subsidiary Sime Darby Overseas (HK) Ltd (SDOHK) to SPG Bohaiwan Port Group Co Ltd for a total cash consideration of RM1.27 billion.
In addition to the disposal consideration, SDOHK will receive an indicative sum of RM357 million as repayment of shareholder loans.
The final amount to be repaid will be based on the actual outstanding shareholders’ loan and accrued interest on the repayment date.
Weifang Port is a seaport located at the Bohai Bay Economic Rim that handles dry and liquid bulk cargo, general cargo and container shipments.
SPG, part of Shandong Port Group Co Ltd, was incorporated by the Shandong provincial government to consolidate port assets in the province.
Meanwhile, Hong Leong Investment Bank (HLIB Research) also said it is overall positive on the disposal exercise, in line with Sime Darby’s long-term strategy of disposing non-core assets while expanding its core segments of industrial equipment and motor.
The research house said the group is expected to recognise a net gain of RM35 million from the disposal exercise (expecting impairments of RM60 million to RM70 million, netting with foreign exchange gain of RM100 million in coming quarters).
“The next large non-core asset in Sime Darby’s book is the MVV lands, measuring 3,237.5ha with a value of RM3 billion (based on previous transacted price to Sime Darby Property).
“Sime Darby is also currently in talks with IHH Healthcare Bhd for the disposal of its 50% joint venture stake in Ramsay Sime Darby Hospital, valued at US$1.35 billion (RM5.97 billion) for 100% stake,” it said in a note today.
As such, HLIB Research maintained a ‘Buy’ recommendation with an unchanged TP of RM2.60, based on an unchanged 10% discount to SOP of RM2.89.
It noted that 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,” it said.
HLIB Research also did not make any changes to Sime Darby’s earnings forecast and noted that the contribution from Weifang Port is relatively immaterial to the group, at 0.5% to 1.1% to the group’s profit before interest and tax for FY22 to FY24.
Similarly, RHB Investment Bank Bhd said it is positive on Sime Darby’s deal as the sale of its non-core ports assets is close to book value.
It added that the proceeds may potentially be distributed as a special dividend.
“The sale came at an opportune time, as the provincial government has mandated SPG to consolidate port assets in the region.
“Had Sime Darby held onto its port assets, it would have faced structural headwinds given the intense competition from SPG, which has a significantly greater scale,” RHB Investment said in a note today.
The research house reiterated its ‘Buy’ call in anticipation of a potential special dividend from the divestment of the group’s non-core assets, and on the continued recovery of car sales in China, which has been boosted by the government’s fiscal stimulus.
However, it lowered its earnings forecast for Sime Darby by 1% each for FY23F and FY24F, after removing the logistics contribution for the period.
“We adjust the valuation of the logistics business in our SOP valuation to reflect the proceeds from the disposal.
“Because the total proceeds from the disposal of RM1.62 million is close to the RM1.80 million BV we had originally ascribed in our valuation, our SOP-based TP remains unchanged at RM2.60,” it noted.
At 12:10pm today, Sime Darby’s shares declined one sen or 0.46% to RM2.16, valuing the group at RM14.71 billion.