Sime Darby : To dispose industrial properties in Australia HOLD

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Sime Darby : To dispose industrial properties in Australia               HOLD

Sime Darby Bhd has proposed to dispose certain industrial properties in Australia to Saizen REIT in exchange for units in Saizen REIT and cash. Sime has also proposed to acquire 80% of Japan Residential Assets Manager Ltd, which is the manager of Saizen REIT. Saizen REIT is listed on the Singapore Stock Exchange. Its share price was S$0.098 before suspension. Saizen REIT's portfolio consists of residential properties in Japan. The largest shareholder in Saizen REIT is Argyle Street Management, which has a 10% equity interest. The selling price of the industrial properties was not disclosed. Hence, we do not know the gain or loss on the disposal of the assets. According to the Bursa announcement, the consideration for the disposal of the properties will be negotiated and be based on the independent valuation of the properties. According to Sime's latest annual report, the total net book value of the group's 15 industrial properties in Australia was RM1.03bil. 

We are not surprised by this development as there have been reports that Sime would be selling its industrial properties in Australia. This is in line with the group's efforts to dispose assets to pare down borrowings. As at end-March 2016, Sime's gross borrowings (including perpetual sukuk bonds) stood at RM15.4bil. Net gearing was 49.5%. In 3QFY16, Sime sold properties in Singapore for a gain of RM406.3mil. The group had also sold land to the Malaysian government at a gain of RM138.7mil for the development of the Damansara-Shah Alam Elevated Expressway and West Coast Expressway. We believe that Sime would be recognising gains on disposal of shares and warrants in E&O Bhd and a property in Singapore going forward. In addition, if market conditions are attractive, we believe that Sime would be listing its motor division and Indonesian plantation unit. Furthermore, there is a possibility that Sime would be selling the remaining 152.8mil shares in E&O Bhd, which represent an equity interest of 12%.   Maintain HOLD on Sime with an unchanged fair value of RM7.55/share. Sime is currently trading at FY17F PE of 27.7x. 

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