KUALA LUMPUR (April 3): Sime Darby Bhd’s sale of its remaining stake in Eastern & Oriental Bhd did “not come as a surprise”, according to a report by The Edge Malaysia this week.

The weekly stated that “it has always been the intention of the group since the 2017 demerger to exit its non-core businesses”.

“Historically, the initial investment in E&O was made in 2011, when Sime Darby had a strong focus in the local property market by virtue of its property division (post pure-play exercise known as Sime Darby Property Bhd).

“The intention to dispose of the E&O shares is very much known to the market and we have been eyeing this disposal for some time. This was a conscious decision made considering investors’ — and analysts’ and fund managers’ — keenness on companies that are focused on their core businesses and not distracted by non-core activities,” a Sime Darby spokesperson told The Edge.

Sime Darby sold its remaining 10.98% stake in E&O to Amazing Parade Sdn Bhd, the private investment vehicle of the Tee brothers who control construction company Kerjaya Prospek Group Bhd, on March 26 for RM93.5 million.

The sale was also seen as “insignificant” by analysts covering the stock. Alex Chia, head of research at RHB Research Institute, told the weekly that the disposal “did not move the needle for the firm’s valuation of Sime Darby”.

“The current market value of E&O is not a material component of the sum-of-parts (SOP) valuation for Sime Darby. And it is not part of its core automotive business either,” said Chia.

The weekly also stated that “Sime Darby derived almost no value accretion from E&O investment”.

Throughout “the decade that it invested in E&O, the conglomerate earned about less than 1% cash dividend yield annually, a rate that even local retail investors could top”, it added.

Data provided by the Sime Darby spokesperson showed that from 2011 and 2020, Sime Darby received total dividends of RM53 million in cash and 8.5 million units of E&O shares from its total investments of RM812 million.

Meanwhile, other analysts are of the view that the “value of E&O could rise as it is the developer of the Seri Tanjung Pinang Phase 2 (STP2)” in Penang.

Earlier reports have revealed that E&O is reclaiming 891 acres of underwater land off the coast of Gurney Drive in Penang. “Out of this total, 131 acres will be alienated to the Penang government. This means, 760 acres of STP2 will be left for E&O to develop and sell,” wrote the business publication.

Read the full report in this week’s The Edge Malaysia

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