KUALA LUMPUR, Sept 12 -- AmBank Research has downgraded Sime Darby Bhd from a ‘buy’ to a ‘hold’ with an increased sum-of-parts-based fair value of RM2.64 per share based on a rolled over the financial year 2021 (FY21F) valuations for all of the group’s segments.
In a note today, the research house has also reduced the group’s motor segment price-to-earnings (PE) multiple to 11 times from 12 times due to the escalating US-China trade dispute.
“We marginally lower our core net profit forecasts for FY20, FY21 and FY22 by 0.6 per cent, 0.5 per cent and 0.5 per cent respectively on assumptions of increased interest expense from additional borrowings to fund the acquisition of three Australian luxury car dealership and earnings contribution from the said acquisition,” it said.
Sime Darby recently announced that its wholly-owned subsidiary, Sime Darby Motors (SD Motors) has acquired the business assets, liabilities and properties of three luxury car dealerships in Sydney, Australia from Inchcape Australia Ltd’s automotive retail unit Trivett for AU$112 million (RM321 million).
The three dealerships represent the BMW, MINI, Volkswagen, Jaguar and Land Rover marques.
“Assuming Sime Darby borrows from an Australian bank at an annual six per cent finance cost, the yearly interest repayment will be about AU$6.7mil (RM19.3 million).
“Based on our back-of-the-envelope estimates, the acquisition will contribute about AU$4mil (RM12 million) to the group’s profit before tax level.
“We have incorporated the changes to our forward estimates. The additional borrowings will increase the group’s net gearing from 0.06 times to 0.08 times, which is still healthy,” it said.
Overall, it said earnings for the Sime Darby’s motor segment will remain unexciting in the near term, and that the industrial segment will stay as the group’s backbone to drive its revenue ahead.
As at 11 am today, its shares dropped one sen to RM2.31 with 1.98 million shares were transacted.
“Sime Darby’s share price has risen nine per cent since our upgrade on Aug 14, 2019, and we strongly believe that our downgrade is justified as the current share price’s upside is limited,” AmBank Research added.