Sime Darby to have potential gain from Seriemas land sale
KUCHING: Sime Darby Bhd ( Sime Darby) is expected by the research arm of CIMB Investment Bank Bhd (CIMB Research) to have potential gain from land sale via Sime Darby Property’s 40 per centowned Seriemas Development (Seriemas).
According to CIMB Research, Seriemas has entered into a conditional sale and purchase agreement to sell 342.5 acres of land in Bangi to SP Setia Bhd ( SP Setia) for RM447.6 million (or RM30 per square foot (psf)), with profit-sharing of 20 per cent of the pretax profit from the development, subject to a maximum of RM44.7 million (or RM3 psf).
CIMB Research highlighted that the land is planned for a mixed development township comprising residential and commercial segments.
It noted that the proposed development is expected to have a gross development value ( GDV) of RM2.74 billion.
“SP Setia targets to launch the township development of the land in 2019,” the research arm said. “Development is expected to take at least eight years to complete.”
The proposed acquisition is expected to be completed by the fourth quarter of 2017 (4Q17).
CIMB Research further noted that the parties arrived at the selling price on a ‘willing-buyer willing- seller’ basis after taking into account the indicative market value of the land of RM477.7 million by an independent valuer.
The research arm was of the view that the selling price for the land is fair.
“We are positive on this news as we estimate Sime Darby could reap gains of RM111 million from the sale of the land via its 40 per cent stake in Seriemas.
“Assuming the gain is recognised in financial year 2018 forecast (FY18F) via higher associates’ earnings, it could bump up Sime’s net profit by 4.6 per cent.
“We have not incorporated this into our earnings forecasts pending the completion of the deal,” CIMB Research said in a company flash note.
Overall, CIMB Research’s rough estimated net profit gain from the sale of land for Seriemas was RM270 million.
The research arm arrived at the potential gain after deducting RM26 million for the original cost of investment of the land, estimated RM74 million cost of converting the land to property development and 20 per cent effective tax rate on the pretax profit gain from the sales consideration of the land of RM447.6 million.
As such, CIMB Research maintained ‘add’, its earnings forecasts and sum of parts (SOP)-based target price of RM9.80 per share.
The research arm expected Sime Darby’s share price to re-rate on the group’s plans to separately list its plantation and property units and improving earnings prospects on better crude palm oil and coal prices.