SIME DARBY BHD

By MIDF Research Maintain neutral Target price: RM9

SIME Darby Bhd is disposing of its 40% stake in Seriemas Development Sdn Bhd (SDSB) to PNB Development Sdn Bhd (PDSB) for RM625mil cash. MIDF noted that PDSB currently has a 60% stake in SDSB.

“Expected gain on disposal is RM305mil and the completion date is by end 2017. We gather that the market value of SDSB land and investment properties is at RM2.79bil. Hence, the 40% stake is worth RM1.23b based on realisable net asset value (RNAV).

“However, the deal is proposed to be at 39% discount to RNAV as it is in line with the range of RNAV discount of 26% to 46% for deals involving Malaysian property development companies.

The research house said it is positive on the news, due to the one-off gain of RM305mil.

“We also expect its net gearing to decline slightly to 0.28-times (from 0.30-times as of end-March 2017).”

MIDF said it had raised its 2018 earnings estimate by 13% to RM2.69bil to reflect the disposal gain of RM305mil.

“However, its 2018 core earnings is unchanged at RM2.33bil. No impact on 2017 earnings as it has ended in June 2017.”

Maintaining a “neutral” call with an unchanged target price of RM9, the research house said its target price is based on a sumof-parts valuation.

“While Sime’s valuation at 27.5-times priceto-earnings appears to be high, its share price is supported by decent dividend yield of 3.3% and the expectation of value creation from the demerger corporate exercise.”