Analysts positive on Sime Darby's Seriamas stake disposal

KUALA LUMPUR (Aug 2): Analysts are generally positive on the news of Sime Darby’s disposal of its 40% stake in Seriamas Development Sdn Bhd (SDSB) to Permodalan Nasional Bhd yesterday for RM625 million cash, despite the lack of details surrounding the transaction.

Sime Darby told Bursa Malaysia yesterday that it expected to record a gain on disposal (after non-controlling interests) of approximately RM305 million. The conglomerate said its original cost of investment in SDSB is RM449 million and that proceeds from the disposal will mainly be used for general corporate purposes and working capital, including repayment of borrowings.

Sime Darby said the disposal consideration represents a discount of 39.4% to the realisable net asset value (RNAV) of SDSB of RM1.23 million as at March 31, 2017.

PublicInvest Research said in a note today that it had no details on the specific location and balance of landbank size held after the disposal, making details of the transaction still unclear.

“As details of the transaction remain sketchy, it is relatively difficult to give our view on this deal,” PublicInvest Research said. However, it maintained its outperform call on the stock, with an unchanged target price of RM9.72.

RHB Research Institute Sdn Bhd however said in its note today that it considers the valuation for the transaction to be relatively inexpensive, but the value-unlocking for the deal is progressing.

“Assuming the hotels and malls have zero value (given location and size), we estimate that Sime is disposing its stake in SDSB for around RM4.48 per square foot (psf). This is in comparison to recent land transactions in Selangor that were closer to RM5 psf,” it said.

“Nevertheless, we would consider this disposal as a positive development. This is due to the fact that Sime’s landbank held under associates is not even included in our RNAV calculation for Sime’s property assets of RM20.3billion. As such, any disposal of such landbank would be additional value unlocking for the company,” it added.

Sime Darby said the disposal in SDSB is expected to be completed by year end, which is also when the group expects to list its property and plantation arms.

RHB however said the market should wait for more details on the upcoming listing structure of its property arm Sime Darby Property Bhd.

“Although Sime’s share price has already risen by more than 20% from its low, we believe the market should wait for more news on the upcoming listing structure and earnings growth drivers in the interim period,” RHB said.

Meanwhile, CIMB IB Research said in a flash note yesterday that it is positive on the news and believes the transaction price is “fair”, as the implied discount of the implied equity value to RNAV is in line with precedent transactions of Malaysian property companies over the past three years, which range from 26.1% to 45.9%.

The research house said Sime’s original cost of investment in SDSB was RM449 million.

“We are positive on this news, as we expect Sime to record a gain on disposal of RM305 million from the disposal, after netting off non-controlling interests and cost of disposal,” CIMB IB Research said.

“We expect the gain to be recognised in FY16/18, and this could bump up Sime’s net profit by 13% or earnigns per share (EPS) by 4.48 sen per share. We have not incorporated this into our earnings forecasts, pending the completion of the deal,” it added.

At 11.34am, Sime’s counter rose 0.43% or four sen higher at RM9.42, with some 2.9 million shares exchanging hands. — theedgemarkets.com

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