Sime Darby shares advance on dividend hope

Sime Darbys share price closed 14 sen higher at RM2 with 13.80 million shares done. This is the highest since March 3.

PETALING JAYA: Shares of Sime Darby Bhd rose to a high of RM2.01 as investors expected the company to reward shareholders with a dividend from the sale of its stake in Tesco Stores (M) Sdn Bhd (Tesco Malaysia)

Its share price closed 14 sen higher at RM2 with 13.80 million shares done. This is the highest since March 3.

Sime Darby is exiting its hypermarket business by the second half of 2020 (2H20), following the disposal of its 30% stake in Tesco Malaysia for RM300mil.

The disposal is part of a larger deal in which Tesco’s parent company, the UK-listed Tesco PLC, had agreed in March 2020 to sell its businesses in Thailand and Malaysia to Thailand’s C.P. Group (CP) for an enterprise value of US$10.6bil (about RM46bil).

Sime Darby expects to make an estimated net gain on disposal of RM270mil from the sale of its stake in Tesco Malaysia, a joint venture it has held since 2001.

Tesco Plc estimated the consideration amount for Tesco Malaysia to be around RM540mil, based on its net asset value, which worked out to RM162mil for Sime Darby’s 30% stake in Tesco Malaysia.

In 2002, Tesco Malaysia began operations as a joint venture between Tesco Plc and Sime Darby.

As of August 2019, Tesco Malaysia had two distribution centres and 68 stores across Malaysia.

“We believe the potential divestment of Tesco Malaysia is positive news to Sime Darby, as the hypermarket has been reporting continued losses since FY15, except for FY18, due to intense competition from discount grocers and the growing e-commerce space as well as an increase in affluent customers, ” Affin Hwang Research said.

The proposed disposal is expected to be completed in the second half of this year. However, Affin Hwuang Research noted that Sime Darby has not decided how it would utilise the proceeds from the divestment of its stake.

It said that Sime Darby’s management guided that divestment of the stake is for reserving cash for rainy days, pare down its borrowings and a 100% payout would reward shareholders a potential special dividend per share of four sen.

Although most brokerage firms are positive about Sime Darby Bhd exiting loss making hypermarket Tesco Malaysia, they remain cautious as the Covid-19 outbreak could impact the group’s automobile segment in China.

Kenanga Investment Bank Research expects Sime Darby’s motor sales in China to slow down in the second half of financial year 2020, although awaiting for the government stimulus to mitigate the negative impact until the outbreak is contained.

Moreover, it also believes the industrial supply chain in Australasia for certain construction equipment and parts would be impacted also by the Covid-19 outbreak.