Positive on Sime Darby’s JV with local partner for China port business

KUCHING: Sime Darby Bhd’s (Sime Darby) joint venture (JV) with a local partner for the group’s China port business garners positive views from analysts.

In a filing on Bursa Malaysia, Sime Darby announced that Sime Darby Overseas (HK) Limited (SDOHK), an indirect whollyowned subsidiary of Sime Darby incorporated in Hong Kong, entered into a JV arrangement with Shandong Chenming Paper Holdings Limited (SCPHL) on January 6, 2017.

This was for an equity purchase agreement (EPA) by SDOHK to dispose 50 per cent equity interest in Weifang Sime Darby West Port co Ltd (WSDWP) to SCPHL for a total cash consideration of 38.61 million renminbi or approximately RM24.92 million.

Meanwhile, the JV contract between SDOHK and SCPHL is for the management and administration of the affairs of WSDWP and the three by 30,000 deadweight tonne (DWT) multipurpose terminal at the Weifang Sime Darby Port located in Shandong, China.

Sime Darby noted that the proposed JV is expected to be completed within the first half of 2017.

The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) was positive on the news as SCPHL is a strong JV partner which is one of the top three paper producers in China.

“We believe that the JV should help WSDWP to secure more baseload woodchip volume for its multipurpose terminal,” MIDF Research said.

Sime Darby’s financial year of 2017 (FY17) and FY18 core earnings were maintained by MIDF Research due to the small contribution from WSDWP historically.

The research arm noted that in FY16, China Utilities sub-division (under the Energy and Utilities division) generated earnings before interest and tax (EBIT) of RM97.6 million or 3.1 per cent contribution to the group.

Overall, MIDF Research maintained ‘buy’ on Sime Darby with a target price of RM9.05 per share.