PETALING JAYA: The sale in one of Sime Darby Bhd’s ports in China is expected to have minimal impact on the group’s earnings moving forward.
Analysts are mainly “neutral” on Sime Darby’s recent proposal to dispose of a 70% stake in Jining Port for RM181.6mil, to be realised over a three-year period.
They pointed out that the port contributed less than 1% to Sime Darby’s earnings annually.
“This divestment deemed non-core allows Sime Darby to continue with its portfolio rebalancing efforts and allows it to monetise and recycle its capital for better use (this port offers a low return on investment), ” Maybank IB Research said in a report.
Post-disposal of a stake in Tesco Malaysia and Jining, the research house expects Sime Darby to continue with the monetisation of its non-core assets.
Its Jining ops at Shandong province operates three river ports, namely, Yuejin, Longgong and Taiping and provides basic port-related services, such as stevedoring and storage services primarily for coal and coal-related products.
Maybank IB expects that Sime Darby could dish out higher dividends from its recent asset disposals and potential listing of its subsidiary, as well as higher earnings from its new completely knocked down (CKD) assembly lines.
“We do not rule out Sime Darby expanding its CKD assembly operations, by bringing in new marques to its Inokom facilities.
“A higher capital expenditure play in the industrial ops post-Covid-19 is also a positive, ” it said.
On Tuesday, Sime Darby group CEO Datuk Jeffri Salim Davidson said that the Jining operations were facing continued downward pressure on margins due to intense competition from neighbouring ports and additional costs.
“Given these factors that are impacting the inland port sector in China, we consider the disposal price reasonable, ” he said in a statement.
CGS-CIMB Research said that the rationalisation exercise would also allow Sime Darby to gradually exit from the port business and reallocate its resources to the higher growth motor and industrial divisions in China.
“With the disposal of the Jining Port, Sime’s logistics business will be left with a single operational asset, namely, Weifang Port in Shandong province.
“We understand Sime had invested over RM1bil in Weifang Port, but it is now also exploring a potential divestment of its stake there, ” it said.
CGS-CIMB Research has maintained its earnings forecast for Sime Darby as Jining Port has minimal impact on the group’s recurring net profit from the sale.
“We see the potential for a special dividend of three sen per share based on a 70% payout from the Tesco stake disposal and better-than-expected margin delivery from the motor division as potential re-rating catalysts, ” it said.
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