HLIB Research viewed the exercise as a good move that reflected Sime Darby’s long-term expansion plan.
PETALING JAYA: Sime Darby Bhd
’s proposed disposal of its entire 50% stake in joint venture (JV) Ramsay Sime Darby Health Care (RSDH) is seen as a positive move that will benefit the group in the long run.
Analysts said the strategy would not only enable the conglomerate to focus on its core business to expand healthily but the disposal would also help address the group’s gearing.
Hong Leong Investment Bank (HLIB) Research viewed the exercise as a good move that reflected Sime Darby’s long-term expansion plan.
“We are overall positive on the disposal exercise in line with Sime Darby’s long-term strategy of disposing of its non-core assets while expanding its core segments of industrial equipment and motor,” the brokerage explained in its report.
“The disposal is also timely to address concerns on the ballooning gearing level of the group for its acquisition exercises,” it added.Sime Darby’s acquisitions this year included equipment rental company Onsite Rental Group Ltd for RM1.9bil, Caterpillar Inc equipment distributor Cavpower Group for RM1.5bil and the upcoming 61.2% stake in UMW Holdings Bhd for RM5.8bil.Sime Darby is expected to realise a net gain of about RM2bil from the disposal of its stake in RSDH, which is a 50:50 JV between the group’s wholly owned subsidiary, Sime Darby Holdings Bhd (SDHB) and Ramsay Health Care Ltd’s unit, AH Holdings Health Care Pty Ltd (AHHC).
Sime Darby recently revealed that SDHB and AHHC had entered into a sale and purchase agreement to dispose of their combined 100% equity stake in RSDH for a cash consideration of RM5.7bil to private hospital chain Columbia Asia Healthcare.
TA Research said the proposed disposal would enable Sime Darby to streamline its portfolio, unlock the value of its healthcare assets and focus on its core industrial and motor trading businesses.
“The profit contribution from RSDH to Sime Darby is only 5% in the financial year ended June 30, 2023 (FY23), which is relatively small to the bottom line,” the brokerage said.
It noted Sime Darby had a RM3.1bil cash pile and that the group’s net gearing would expand to about 0.8 times post-acquisition of UMW and Cavpower.
“The disposal proceeds will help reduce Sime Darby’s gearing ratio and provide further borrowing headroom for the group. More importantly, we believe the value creation far exceeds the impact of earnings loss from the healthcare business,” it added.
TA Research said its sum-of-parts (SOP) valuation indicated that its target price for Sime Darby would increase by 35 sen per share, assuming a cessation of the entire healthcare operation.
TA Research maintained its “buy” call on Sime Darby with an unchanged SOP-based target price of RM2.50.
HLIB Research also reiterated “buy” on Sime Darby. The brokerage raised its target price for the counter to RM2.60 from RM2.40 previously, based on an unchanged 10% discount to SOP of RM2.89.
“Sime Darby will continue to leverage onto the strong momentum of its industrial segment, driven by mining in Australia in FY24. We also expect a continued decent dividend yield of 5.1% for FY24 and FY25,” it said.
