Sime Darby’s motor segment to remain dull

12 Sep 2019 / 20:32 H.

PETALING JAYA: Sime Darby Bhd’s motor segment is expected to remain unexciting in the near term despite the A$112 million (RM321 million) acquisition of Australian dealerships in the pipeline, according to AmInvestment Bank Research (AmResearch).

It believes the industrial segment will stay as the group’s backbone to drive its revenue ahead.

The research house is downgrading Sime Darby to “hold” from “buy” call with a fair value of RM2.64.

“Sime Darby’s share price has risen 9% since our upgrade on Aug 14, and we strongly believe that our downgrade is justified as the current share price’s upside is limited.”

AmResearch has also reduced the group’s motor segment’s price-to-earnings multiple to 11 times from 12 times due to the escalating US-China trade war tension which will impact its China motor operations.

The research house also lowered the group’ net profit forecast for FY20–22 by 0.5% to 0.6% on the assumption of increased interest expense from additional borrowings for the dealership acquisition and the earnings contribution from the acquisition.

AmResearcch noted that the acquisition is expected to strengthen the group’s presence and brand visibility in Parramatta, one of Sydney’s most recognised automotive retail locations.

“Based on our back-of-the envelope estimates, the acquisition will contribute about A$4 million to the group’s profit before tax level.”

However, the additional borrowings will increase the group’s net gearing from 0.06 times to 0.08 times, which is still healthy.

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