Maybank IB raises optimism on Sime Darby

KUALA LUMPUR: The demerger of Sime Darby Bhd to establish three specialised fields and executing strategies for longer term would be the key for further re-rating, said Maybank Investment Bank (Maybank IB), raising its optimism on the conglomerate.

“From its diversified exposure, we like Sime Darby for its sustainable earnings base, which is mostly derived from recurring after-sales service and parts, recording RM7.2 billion or 23 per cent of the group’s revenue in the financial year ended June 30.

“The demerger exercise is a positive for Sime Darby reinstated anchor businesses in industrial and motors, which require more dedicated management attention in order to improve their respective time-to market and better manage their expansion plans,” said Maybank IB in a report yesterday.

The demerger exercise would emerge Sime Darby as a leaner and meaner player in its space going forward due to lower head office costs.

“We project Sime Darby current operations are highly cash generative with a net gearing of 12 per cent in the financial year ending June 30 next year,” said Maybank IB.

It said Sime Darby would likely maintain its dividend policy, at least 50 per cent of net earnings based on historical trend. It has kept a “hold” recommendation for the company, with a target price of RM2.10, implying for the financial year 2019.