KUALA LUMPUR: Sime Darby Bhd's disposal of Ramsay Sime Darby Health Care (RSDH) is timely to address concerns about the company's ballooning gearing level for acquisition exercises, said Hong Leong Investment Bank (HLIB Research).
Sime Darby and Ramsay Healthcare Ltd have entered into a sale and purchase agreement with Columbia Asia for the disposal of their combined 100 per cent stake in RSDH for RM5.7 billion.
HLIB Research stated in a note today that the valuation was arrived at on a "willing buyer-willing seller" basis, derived from an enterprise value of RM6.1 billion.
RSDH operates four hospitals in Malaysia and three hospitals in Indonesia.
"We are overall positive on the disposal exercise, in line with Sime Darby's long-term strategy of disposing of its non-core assets while expanding its core segments of industrial equipment and motors.
"The group is expected to recognise a net gain of RM2 billion from the disposal exercise. The disposal is also timely to address concerns about the ballooning gearing level of the group for its acquisition exercises," it said in a note today.
Sime Darby is acquiring Onsite Rental Group Limited for RM1.9 billion, Cavpower Group for RM1.5 billion, and UMW Holdings Bhd for RM5.8 billion.
HLIB Research noted that the cash proceeds of RM2.8 billion to Sime Darby will be used to repay the borrowings for the acquisition of UMW Group, costing RM5.8 billion (disposal gain of RM250 million).
"Overall exercise (to dispose of RSDH) is expected to be completed by the first quarter of 2024, similar timing with the completion of UMW acquisition."
Sime Darby has also recently completed the disposal of 307.56 hectares of Malaysian Vision Valley (MVV) land to Sime Darby Property, with cash proceeds of RM280 million.
The next large non-core asset in Sime Darby's book is the remaining MVV lands, measuring 3197 hectares, which are valued at RM3 billion.
HLIB Research maintained "buy" on the stock with a higher target price of RM2.60.
"While there are ongoing global economy risks in the near term, Sime Darby will continue to leverage the strong momentum of its industrial segment, driven by mining in Australia, in the financial year 2024 (FY24). We also expect a continued decent dividend yield of 5.1 per cent for FY24–25f," it said.
