Finding value in conglomerate’s demerger
PETALING JAYA: The demerger of Sime Darby Bhd will come to fruition by the end of this month, assuming it receives all the approvals including from shareholders.
Following the restructuring, the group in its current form will be broken up into three listed entities – Sime Darby Plantation Bhd, Sime Darby Property Bhd and Sime Darby Bhd.
Each of the stocks offer a different value proposition to shareholders.
Among the three, the Sime Darby holding the residual assets offers immediate returns with a dividend payout. Going forward, it offers potential for more value creation for shareholders, as it is overcapitalised. It has a lot of assets that can be sold or monetised with the proceeds being paid out to shareholders.
Sime Darby Plantation would likely be a core stock for large funds to hold with predictable earnings.
As for the property arm, the sentiment is weak for now. A listing will offer existing investors the opportunity to sell and realise some gains from the de-merger.
The residual assets, mainly the automotive and industrial divisions, will power Sime Darby Bhd. It offers an attractive proposition for investors to hold on to this stock after the de-merger on two counts.
Firstly, there is a dividend of 17 sen to be paid out next month. Secondly, the automotive and industrial divisions have an international business spanning Asia and Australia.
The automotive division is anchored in the sale and distribution of BMW cars, while the industrial division is powered by Caterpillar-branded equipment and machinery.
Sime Darby is overcapitalised and has a lot of assets that can be monetised with proceeds being declared for more dividend payouts.
For instance, its ports in China, the medical divison in Sime Darby Medical Centre and stakes in retail outlets such as Tesco are all good assets that can be monetised or disposed.
The demerger is Tan Sri Wahid Omar’s first restructuring effort to sweat the assets of Permodalan Nasional Bhd. Since helming it last year, Wahid has made the demerger of Sime Darby his priority. Fund managers have also waited for this exercise to see how Wahid will unlock more value in Sime Darby. With so much at stake for the major shareholder, it cannot fail.