Sime’s asset disposal poser

ONE fact that keeps research analysts piqued about Sime Darby Bhd is the list of assets the group could hive off.

The rationale for that is simple, considering that any asset divestment could lead to special dividends for investors.

Last year, Sime Darby disposed of its water asset management business in China. Following that, the group announced a special dividend for its shareholders.

The sale, which brought in more than Rm275mil, saw Sime Darby paying a special dividend of two sen to its shareholders in financial year 2018 (FY18) and another one sen in FY19.

In FY19, the group dished out a total of 10 sen dividend per share, higher than the eight sen per share of a year earlier.

The million-dollar question, though, is when will Sime Darby next dispose of an asset?

Group CEO Datuk Jeffri Salim Davidson says the group is always on the lookout for opportunities, but is not in a hurry to sell anything.

“We are in no hurry and continue to be on the lookout for the right time and opportunity to divest.

“There is no immediate urgency to raise cash, given our low gearing levels,” he tells Starbizweek in an interview.

Still, analysts remain bullish on the possibility.

“Margin expansion from the industrial and motor divisions and potential to unlock its land-bank assets are potential rerating catalysts,” wrote CGS-CIMB Research in its recent report.

Sime Darby’s dividend policy is to pay out at least 50% of net earnings, but the FY19 dividends represented a 72% or Rm680mil payout ratio.

Sime Darby has a list of non-core assets ranging from ports in China to land in Negri Sembilan.

The most prominent asset for disposal must be Sime Darby’s four ports in China, as the company has often talked about plans to sell these over the last few years.

Sime Darby is the primary operator of the Weifang Port in China. It also owns three major river ports along the Grand Canal in Jining in Shandong, China.

Jeffri says the sale of these port assets would take time, as there is a consolidation exercise of ports going on in Shandong province, which is being led by the government.

“This is a non-core asset for us. We have divested Weifang Water and are looking at divesting our ports in China.

“For the time being, we will focus on optimising operational efficiency and once the port consolidation is completed, we will look into divestment,” he says.

He expects it would take between one and two years to dispose of these assets.

“Moving forward, we will remain very focused on our core trading businesses,” explains Jeffri.

Sime Darby’s logistics assets in China carry a net book value of Rm1.26bil, going by its 2019 annual report.

Other non-core assets include an insurance broking business, a 30% stake in Tesco Stores (M) Sdn Bhd and a 12% stake in property developer Eastern & Oriental Bhd (E&O).

However, a jewel in the crown for the group is its land in Labu, Negri Sembilan.

The land it owns spans over 8,800 acres, and has been earmarked to be part of the Malaysia Vision Valley project, an ambitious plan that includes industrial parks, wellness centres and even a river sanctuary.

Sime Darby Property is to be the master developer of the project and has an option to acquire Sime Darby’s 8,800 acres there at market price.

Sime Darby’s 8,800 acres alone is said to be worth Rm2.5bil, according to a report by Hong Leong Bank Research.

On its E&O stake, Jeffri says the group is not going to participate in the latter’s recent call for a rights issue. This will dilute Sime Darby’s stake in the property developer company to about 9% from 11% currently.

“This is a non-core business for us. Hence, there are no plans to invest further in this business,” he says.

According to Bloomberg data, nine analysts have a “buy” call on Sime Darby and six suggest a “hold”, with the absence of any “sell” calls.