Maintain neutral with an unchanged target price of RM8.20: According to The Edge weekly, Sime Darby Bhd is attempting to dispose of Hotel Equatorial Melaka for an estimated RM180 million.

The Edge weekly also quoted Sime Darby property division acting managing director Datuk Jauhari Hamidi as saying, “Sime Darby Property is open to business opportunities, including divestments that capture the desired value of its portfolio. However, to date, we have not officially concluded any transaction on Hotel Equatorial Melaka.”

We gather that Sime Darby has an effective stake of 55% in Equatorial Melaka.

Hotel Equatorial Melaka is a five-star 22-storey international business hotel located in Bandar Hilir, Melaka. Sime Darby acquired the asset in 1998 and the hotel is now 17 years old. As of end of financial year 2015 (FY15), the hotel’s net book value is RM81.4 million.

We are neutral at this juncture pending the materialisation of the deal. The impact on Sime Darby’s balance sheet is also minimal even if the deal materialises.

Assuming the RM180 million price mentioned in the news report, Sime Darby’s net gearing should be reduced to 0.5 times from 0.51 times as of the end of September 2015.

As the news has yet to materialise, we maintain our FY16 and FY17 core net incomes at RM2.14 billion and RM2.22 billion respectively. — MIDF Research, Dec 7

Do not ask your soul mate about the value of your home. Click here at The Edge Reference Price to find out.

This article first appeared in The Edge Financial Daily, on Dec 8, 2015. Subscribe to The Edge Financial Daily here.

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