Sime Darby selling entire 40% interest in property firm to PNB

PETALING JAYA: Analysts are positive on Sime Darby Bhd’s disposal of its 40% stake in Seriemas Development Sdn Bhd (SDSB) for RM625 million to Permodalan Nasional Bhd (PNB) as any disposal of such landbank would unlock additional value for it.

RHB Research Institute said the disposal price is relatively inexpensive and considers this a positive development. This is due to the fact that the conglomerate’s landbank held under associates is not even included in its revalued net asset value (RNAV) calculation for Sime’s property assets of RM20.3 billion.

“As such, any disposal of such landbank would unlock additional value for it. Besides SDSB, Sime has several other companies with various landbanks for property development as well as property investments, which could be hived off. This would give Sime additional cash flow to repay its debts prior to listing,” RHB said in its report.

Besides SDSB, Sime Darby Property also has a 30% stake in Kuantan Pahang Holding Sdn Bhd, a 30% stake in Mostyn Development Sdn Bhd and a 36% stake in Shaw Brothers Sdn Bhd. All three companies have property development projects and property investment landbanks. Disposing of these associate companies could give Sime Darby Property additional cash flow to repay its debts prior to listing.

“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,” said RHB.

With foreign shareholdings having risen to 15.3% from 12% over the last eight months, RHB said there is still much hope for value enhancement from the listing. This is especially so when many details on Sime Darby Property’s listing have not been announced yet.

RHB maintained its “buy” call on Sime Darby, with an unchanged target price of RM10.15.

Meanwhile, AllianceDBS Research said the move by Sime Darby is unsurprising, in line with its ongoing drive to unlock value from its assets.

“The expected gain of RM305 million (less associate contribution) is a 10% increase to our forecasted aggregate Sime Darby FY18 earnings. However, given the disposal timeframe (expected to complete before end-2017), it will ultimately contribute as a one-off gain to the demerged Sime Darby Property. We think such gains are underpinning the property unit’s higher-end valuations,” said AllianceDBS.

It maintained its “hold” call on Sime Darby with a target price of RM9.05, pending further developments.