Sime Darby’s disposal of Jining Ports lauded
KUCHING: Analysts across the board are positive on Sime Darby Bhd (Sime Darby) after its wholly owned subsidiary, Sime Darby Overseas (HK) Ltd (SDOHK) will dispose of Jining River Ports ( Yuejin, Lonnggong and Taiping) for RM182.7 million.
In a filing with Bursa Malaysia, Sime Darby said the aggregate consideration of RM181.6 million was derived based on the projected cash flows of the Jining Port Companies.
The Phase 1 ETAs are expected to be completed within one month from date of signing on November 30, 2020.
Sime Darby said the subsidiary had also signed a shareholders’ agreement to subscribe for a 49 per cent equity interest in Jining Port and Shipping Port Services Co Ltd (JPSPS) for 199.9 million renminbi ( RM123.5 million).
SDOHK and JPSDG will incorporate a new vehicle, JPSPS, to develop the local port economy, it said.
Besides that, SDOHK has also entered into ETAs with JPSDG to divest its entire 49 per cent equity interest in JPSPS for 213.7 million renminbi ( RM132 million) over three years.
All proposals are not expected to have a material effect on the earnings per share, net assets per share and gearing of Sime Darby for the financial year ending June 30, 2021.
“The proposed divestment is aligned to Sime Darby’s ongoing efforts to rationalise its non- core assets,” the team at Kenanga Investment Bank Bhd ( Kenanga Research) commented yesterday.
“The agreements allowed for a staggered exit from its investment in three Jining Ports over three years. The port operations are facing continued downward pressure on margins due to intense competition from neighbouring ports, and additional costs.
“The disposal is also in line with the exercise being undertaken by the Jining government to consolidate the fragmented river port industry in Jining.”
Jining Ports operates three river ports located in Jining, Shandong Province. It provides basic port related services such as stevedoring and storage services primarily for coal and coal-related products.
As at FY19, Jining Ports has a capacity of 16.4 million metric tonnes per annum, with a utilisation of 57 per cent. JPSDG, meanwhile, is a wholly stateowned company which is locally appointed as port consolidator for Jining City.
“This news is not a surprise as management had expressed its intention to monetise its non- core businesses,” opined Public Investment Bank Bhd ( PublicInvest Research). “Sime Darby is estimated to record a marginal loss on disposal of RM8 million.
“Valuation-wise, we view the disposal price of 1.01 times its profit to book value ( based on net book value of RM172 million as at October 31, 2020) as fair, inline with our valuations.
“We view this disposal positively as it helps to realise the underlying value of non- core assets within the Group as well as improve the group’s cash flow while strengthening its balance sheet.”
Post- disposal, there will be one more port left under Sime Darby, which is the Weifaing Ports with contribution on average around RM20 million to RM30 million in profits after tax, amortisation and minority interest.
Sime Darby noted that most of the group’s operations are in countries or territories that are not subject to significant movement restrictions and the recovery in motor vehicle sales has generally been strong.
“However, there is also disruption risk to supply chains that may limit sales as there may not be sufficient inventories for certain new models to meet sales,” Kenanga Research added.
“Increased infrastructure spending from fiscal stimulus measures by various countries would support equipment sales for the Industrial division. However, lower coal prices and import restrictions by China may adversely impact equipment sales in Australia.”
The proposed divestment is aligned to Sime Darby’s ongoing efforts to rationalise its noncore assets. Kenanga Research