Sime Darby’s ongoing portfolio rebalancing bid


Sime Darby Weifang port

PETALING JAYA: Sime Darby Bhd’s proposed sale of its port assets will result in a net gain of RM35mil and the proceeds will be utilised for investment opportunities, capital expenditure and repayment of short term borrowings.

Sime Darby announced on Monday it entered into seven share sale agreements with SPG Bohaiwan Port Group Co (SPG) to divest its entire interest in the Weifang Port companies for RM1.27bil cash.

AmInvestment Bank Research said the deal, at one time price to book value (P/BV) as at March 2022, is deemed fair.

A similar valuation was ascribed when Sime Darby had disposed of Jining Port companies in December 2020, it added.

It expected earnings contribution from the operation to be deconsolidated from the third quarter of financial year 2023.

“We are generally ‘neutral’ on this exercise. The divestment of the Weifang Port business is not unexpected and in line with Sime Darby’s portfolio rebalancing efforts. The group has been monetising its non-core assets and will reallocate the proceeds by reinvesting in its core businesses i.e. the motors and industrial divisions for higher returns on investment,” said the research firm.

Sime Darby is still in talks with IHH Healthcare Bhd to dispose of its healthcare business – Ramsay Sime Darby Healthcare Sdn Bhd and is also said to be looking to dispose of its Malaysia Vision Valley land.

Meanwhile, RHB Research said the port divestment came at the right time because the Chinese 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. As a port operator, SPG understands the value of Sime Darby’s port assets, thus allowing the latter to sell Weifang port at about 0.98 time P/BV and exiting at almost its book value of MYR1.67bil,” said the research firm.

Apart from reinvesting part of the proceeds in its motor and industrial businesses in China, RHB Research said a special dividend could be on the cards “although management did not guide on any potential amount.”

“Assuming the company distributes half of its disposal consideration, that should translate to a special dividend per share of 12 sen, yielding 5.5%,” it added.

Removing the contribution from the ports, the research firm said it has lowered estimated earnings by 1% each for FY23 and FY24.

Similarly, TA Research saw more room for the group to pay higher dividends on improving cash flows.

Hong Leong Investment Bank (HLIB) Research said Sime Darby was expected to deliver sustainable earnings into FY23 despite the ongoing global challenges.

A continued decent dividend yield of 5.3% for the financial year is expected, according to HLIB.

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Sime Darby , China , ports ,

   

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