Sime Darby disposal of stake in Tesco Malaysia a positive move, say analysts

PETALING JAYA: Sime Darby Bhd’s disposal of its 30% equity stake Tesco Stores (Malaysia) Sdn Bhd to Thailand’s CP Retail Development Co Ltd, for RM300 million is seen as a positive development by analysts, which they say is in line with the group’s non-core asset rationalisation exercise.

CGS-CIMB pointed out that the disposal is conditional upon the approval by the domestic trade and consumer affairs ministry, along with the sale of Tesco Thailand to CP and the disposal is expected to be completed in the second half of this year.

The group expects to record an estimated net gain of RM270 million, or 4 sen per share, from the proposed disposal, which will contribute positively to its FY6/21F net profit.

“We are pleasantly surprised by the higher projected gain on the proposed disposal, given that we had expected the group to register a gain of around RM162 million or 2 sen per share, according to the projected consideration value from Tesco Plc’s announcement on March 9,” it said in a report.

“We learnt that Sime Darby managed to negotiate for a higher offer from the buyers. The group has yet to finalise the proceeds utilisation from the disposal.”

The research house noted that the group’s proposed disposal will not affect its recurring net profits. With that, it reiterates its ‘add’ rating on the stock with an unchanged target price of RM2.20 per share.

Meanwhile, Public Investment Bank Research (PIVB) highlighted that Sime Darby had already fully written down its investment in the hypermarket operator in 2015.

“While no plan was made on the utilisation of the proceeds, we did not discount the option of distributing it as a special dividend, which could amount to 4 sen per share. For FY21F, we are forecasting a regular DPS of 6.4 sen,” it said.

PIVB Research is maintaining its neutral call on Sime Darby with a target price of RM2.01.

However, Affin Hwang Capital said that while it views the disposal positively, it is still cautious on the macro environment, given the Covid-19 pandemic.

The research house stated the group’s management guided in a conference call that its options for the disposal gains are to reserve cash for rainy days, pare down its borrowings or make a 100% payout to reward shareholders

“We maintain our sell rating and target price of RM1.50. At 16x FY20E PER, valuations look stretched considering the challenging macro outlook,” said Affin Hwang Capital.

It listed improvement in economic environment and consumer confidence which affect the key markets/industries Sime operates in and stronger commodity prices spurring demand in Sime’s industrial division as key upside risks to its call.

source https://www.thesundaily.my/business/sime-darby-disposal-of-stake-in-tesco-malaysia-a-positive-move-say-analysts-FC2325117