This article first appeared in The Edge Financial Daily, on June 27, 2016.
Sime Darby Bhd
(June 24, RM7.49)
Maintain neutral with an unchanged target price (TP) of RM7.85. Sime Darby Bhd announced that it had disposed of its entire equity interest held in Syarikat Malacca Straits Inn Sdn Bhd (SMSI) to Permodalan Nasional Bhd for RM55.355 million cash.
We are neutral on the news as the impact on Sime Darby’s balance sheet is minimal. Our estimate shows that Sime Darby’s net gearing should remain at 0.42 times post the disposal. Earnings impact is also minimal as we expect Hotel Equatorial Melaka’s earnings contribution to be immaterial given the challenging outlook in the hotel industry.
We expect the news to have minimal impact on Sime Darby’s share price. Excluding the news, weak earnings from industrial division should keep Sime Darby’s share price upside limited. However, the downside is limited as well due to a decent dividend yield of 2.9%. — MIDF Research, June 24