KUALA LUMPUR: Maybank Investment Bank Research (Maybank IB) has maintained its buy call on Sime Darby Bhd with 12 months target price of RM2.58 as the race to acquire Tesco Plc’s Asian operations heats up.
According to Maybank IB, Tesco reportedly was keen to exit its Asian operations and had invited prospective bids for its Thailand and Malaysia operations.
“The bidding has attracted interest from several bidders, namely CP Group, Central Group, controlled by the Chirativat family and beer-and spirits magnate Charoen Sirivadhanabhakdi (CS), whereby newsflows suggest that CS has secured nearly US$10 bil (RM42) in financing commitments for this bid,” it said in a note today.
Sime Darby owned a 30% stake in Tesco Malaysia under Tesco Stores (M) Sdn Bhd.
“Based on our hypothesis, Sime Darby’s shareholders could potentially be rewarded with a special dividend per share (DPS) of up to 25 sen (100% dividend payout ratio), should it sell this non-core asset for US$2 bil.
“This would make Sime Darby a compelling dividend play counter,” said the research house.
Maybank IB said Tesco Malaysia reported RM4 bil per annum (p.a.) in revenue and RM372 mil to RM393 mil p.a. in earnings before interest, tax, depreciation and amortisation (Ebitda) over the last two financial year ends (FYEs).
Tesco Malaysia was in the red in FY19 (-RM44 mil) but returned to the black in FY18 (RM23 mil), and its current net debt stood at RM2.3 billion in FY19.
“It is understood that Malaysia’s business is valued at US$1 bil to RM2 bil, which would translate to 1-2 times price-to-sales (P/S) and 16x-26 times enterprise value (EV)/ Ebitda,” it said.
Assuming the debts are completely knocked off from the US$1 bil to US$2 bil valuations, Maybank IB said Sime Darby would stand to gain about RM0.5 bil to RM1.7 bil from this deal, for its 30% stake.
A 100% payout translates to a potential special DPS of 7.5-25 sen to shareholders, it added.
Tesco operates 1,967 stores in Thailand under the Tesco Lotus brand and 74 outlets in Malaysia and the Asian business made a combined 4.9 billion pounds revenue and 286 million pounds in profit in 2018, 1/5 of its global earnings.
At 10.35am, Sime Darby rose three sen to RM1.99 from yesterday’s close of RM1.96, with 1.12 million shares changing hands. – March 3, 2020, Bernama
