Sime Darby’s gearing to reduce with land sale

PETALING JAYA: The disposal of another huge tract of land in Malaysia Vision Valley (MVV) in Negri Sembilan by Sime Darby Bhd will see it saving on interest payments and boost financial year 2024 (FY24) forecast earnings by some 2%. Kenanga Research said the proceeds from the sale would also reduce the group’s net gearing.

Last Friday, Sime Darby said it was a tract of land in MVV measuring 1,281.8 acres to LEAP market-listed Uni Wall Aps Holdings Bhd via a Negri Sembilan state-owned company, NS Corp, for RM445mil cash.

Kenanga Research said it was a fair price with the transaction valuing the land at about RM13 per square foot (psf). In comparison, it noted that Sime Darby recently sold a parcel of MVV land to property developer Matrix Concepts Holdings Bhd at the same price of RM13 psf while other agricultural land parcels in proximity are listed ranging from RM9.5 psf to RM14.9 psf.

“Sime Darby will book a one-off gain of RM399mil. The exercise would be earnings accretive – interest savings from the proceeds will boost its FY24 earnings by 2% while the proceeds will also reduce its net gearing from 0.23 times to 0.22 times,” it said.

However, the research firm said it was maintaining its forecasts pending the completion of the deal.

According to it, the land is currently gazetted as agricultural land with development potential and Uni Wall plans to build a high-tech industry hub called NS International Tech Park focusing mainly on aerospace, food and beverage, pharmaceutical and cosmetic industries, as well as a new central business district for residential, commercial, regional office centres and a medical centre.

Meanwhile, RHB Research notes that in recent months, Sime Darby sold 2,664 acres of its MVV land, as part of its efforts to monetise this non-core asset. The research firm said Sime Darby can use the proceeds for investments, dividends, working capital, and repaying debt.

“We think Sime may reinvest into its core motor and industrial businesses, potentially acquiring adjacent and complementary assets,” said RHB.

Since acquiring 8,796 acres of MVV land from Sime Darby Plantation Bhd in 2017 as part of Sime Darby’s demerger exercise, it has undergone three transactions to sell its MVV land.

“This leaves Sime Darby 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,” added the research firm.

Post-transaction, RHB also maintains its core-earnings forecast, as the gains from the sale of land are non-core. However, it has raised the stock’s target price to RM2.75 (from RM2.55 previously) as it adjusts the MVV land value in its sum-of-parts valuation.

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