KUALA LUMPUR: Sime Darby Bhd's acquisition of Salmon Earthmoving Holdings Pty Ltd (SEH) is expected to complement and strengthen the company's existing industrial business in Australia, according to the analyst.
Hong Leong Investment Bank (HLIB) Research said the acquisition would allow Sime Darby to expand its market into the civil construction sector and the New South Wales region.
Currently, Sime Darby focuses more on the Queensland region.
"We are overall positive on the acquisition exercise, as the exercise will complement and strengthen Sime Darby's existing industrial business segment in Australia.
"Sime Darby will continue to look out for more pockets of acquisitions to complement and enhance its core segments, i.e. industrial and motor business in existing geographical regions," it said.
Sime Darby is acquiring Salmon Australia for RM327 million, which will be completed by August 2021.
SEH is a leading provider of rental and maintenance services in Australia, servicing the civil construction, agricultural and mining sectors.
The company has been established for more than 70 years, with over 280 pieces of large plant and equipment on offer.
The research house understands that the acquisition price of RM327 million is valued at 1x price-to-book (PB) and 10 times price-to-earning (PE), which is comparatively cheaper than Sime Darby's valuation of 1x PB and 12.9 times PE.
"Nevertheless, the contribution will be relatively immaterial to the company's current large earnings base of RM1.1 to 1.2 billion," it said.
HLIB has maintained a 'Buy' recommendation with an unchanged target price of RM2.68 on Sime Darby.
"We expect Sime Darby to continue leveraging Australia's mining sector and recovery of the China market.
"We also expect a continued decent dividend yield of 6.4 per cent for the year," it added.