KUALA LUMPUR (July 5): The divestment of the Weifang Port business is not unexpected and is in line with Sime Darby Bhd’s portfolio rebalancing, according to AmInvestment Bank Bhd.
In a note on Tuesday (July 5), the research house said it is generally neutral on Sime Darby’s divestment and maintained its "buy" call on the stock with a lower target price of RM2.88, from RM2.90 previously, based on the disposal proceeds and rolling forward its valuation base year to the next financial year ending June 30, 2023 (FY23).
“The group has been monetising its non-core assets and will reallocate the proceeds by reinvesting in its core businesses (i.e. the motors and industrial divisions) for higher returns on investment.
“We continue to like the company given that it is one of the beneficiaries of the rally in commodity prices and the pickup in economic activities will likely benefit Sime Darby’s industrial and motors divisions,” it said.
Meanwhile, the research house pointed out that the stock is currently trading at an attractive forward price-earnings ratio (P/E) of 12 times against its four-year average P/E of 17 times with a decent dividend yield of 4%.
On Monday, the group announced the divestment of the Weifang Port companies in China for about RM1.27 billion, marking its full exit from the non-core ports business.
Sime Darby said its indirect wholly-owned subsidiary Sime Darby Overseas (HK) Ltd (SDOHK) had entered into share sale agreements with SPG Bohaiwan Port Group Co Ltd to divest its Weifang Port companies.
In addition to the disposal consideration, SDOHK will receive an indicative sum of approximately RM357 million as repayment of shareholder loans.
The group also shared that proceeds from the sale of the Weifang Port companies will be utilised for future investments in the group’s core industrial and motors businesses, for capital expenditure and/or to repay short-term borrowings.
The share sale agreements are expected to be completed by the fourth quarter of 2022.
At the time of writing on Tuesday, shares in Sime Darby traded unchanged at RM2.17, giving the group a market capitalisation of RM14.71 billion.