KUALA LUMPUR: Sime Darby Bhd could rake in up to RM126 million gain from British retailer Tesco plc’s sale of its businesses in Thailand and Malaysia to Thailand’s CP Group for an enterprise value of US$10.6 billion.
The RM126 million is based on Sime Darby’s equity value of US$100 million in Tesco Malaysia, said Affin Hwang Capital.
The firm said the potential divestment was positive to Sime Darby, as Tesco Malaysia hypermarket had been reporting continued losses since financial year 2015 (FY15) (except FY18, likely due to one-off effect) due to intense competition from local players.
“Sime had discontinued the recognition of its share of losses in Tesco Malaysia since FY17 as the group’s carrying value in the associate is nil,” Affin Hwang said in a report today.
The firm said Sime Darby could use the RM126 million to pare down its borrowings (net gearing: 0.26 times as at second quarter financial year 2020) or pay all of the money via a special dividend of 1.9 sen per share to reward its shareholders
Affin Hwang said the proposed disposal was in line with Sime Darby’s plan to rationalise its non-core business in the long run.
“In terms of valuation, we think that the implied enterprise value of about seven times for Tesco Malaysia is comparable to Aeon Co Malaysia of six times and Dairy Farm International of eight times.”
The firm cautioned investors that the deal was still under evaluation from the Thailand’s antitrust office as this might lead to a formation of a monopoly over the country’s retail sector.
Overall, Affin Hwang kept its earnings forecasts on Sime Darby with a “Hold” rating and price target of RM2.
Meanwhile, Sime Darby Bhd, which owns a 30 per cent stake in Tesco Stores (Malaysia) Sdn Bhd said it was aware of the overall proposed sales by Tesco PLC.
“Both management teams are in contact with each other. There are several procedural matters that are typical to a joint venture of this nature that will need to be fulfilled before an announcement can be made,” Sime Darby spokesman told the New Straits Times.
The conglomorate said it will announce the matter at the appropriate time.