Sime Darby
(Dec 15, RM8.95)
Maintain hold with revised target price of RM8.50 from RM8.36: Sime Darby has completed the acquisition of the former Bucyrus distribution assets (in Australasia) and rights under Sime’s dealership territories for US$360 million (RM1.2 billion).
While earnings impact is neutral in the short term, the inclusion of Bucyrus product offerings will be positive in the longer term. We maintain “hold” but raise our target price to
RM8.50 (from RM8.36; based on unchanged 16 times FY13 price-earnings ratio) on revised earnings.
Yesterday, Sime completed the acquisition of assets used in the former Bucyrus distribution in Sime’s Caterpillar dealership service territories in Queensland and the Northern
Territory of Australia, Papua New Guinea and New Caledonia for US$360 million cash. The acquisition comes with distribution rights for former Bucyrus products where Sime’s industrial division operates: Malaysia, Singapore, the Maldives, Christmas Island and parts of China.
While the breakdown of the acquisition price was not made known, we consider the price somewhat high as it is almost double our earlier estimates of RM537 million.
The key difference is that our earlier price estimate only accounted for the Australian assets. The current order book for Bucyrus in Australia stands at RM2 billion (to be delivered over the
next 18 to 24 months). This adds to Sime’s existing order book of RM3.5 billion for the industrial segment, providing good earnings visibility.
We understand Sime is buying the Bucyrus assets at about 10 times enterprise value/earnings before interest, tax, depreciation and amortisation (EV/Ebitda). At 10 times EV/Ebitda, the additional Ebitda contribution to Sime is about RM110 million.
Assuming about 4% borrowing cost and 25% corporate tax rate, the incremental profit to Sime is some RM50 million per year, raising our FY12 to FY14 net profit by 1% to1.6%. This excludes potential synergies that Sime could tap into post the merger of operations in Australia. — Maybank IB Research, Dec 15
(Dec 15, RM8.95)
Maintain hold with revised target price of RM8.50 from RM8.36: Sime Darby has completed the acquisition of the former Bucyrus distribution assets (in Australasia) and rights under Sime’s dealership territories for US$360 million (RM1.2 billion).
While earnings impact is neutral in the short term, the inclusion of Bucyrus product offerings will be positive in the longer term. We maintain “hold” but raise our target price to
RM8.50 (from RM8.36; based on unchanged 16 times FY13 price-earnings ratio) on revised earnings.
Yesterday, Sime completed the acquisition of assets used in the former Bucyrus distribution in Sime’s Caterpillar dealership service territories in Queensland and the Northern
Territory of Australia, Papua New Guinea and New Caledonia for US$360 million cash. The acquisition comes with distribution rights for former Bucyrus products where Sime’s industrial division operates: Malaysia, Singapore, the Maldives, Christmas Island and parts of China.
While the breakdown of the acquisition price was not made known, we consider the price somewhat high as it is almost double our earlier estimates of RM537 million.
The key difference is that our earlier price estimate only accounted for the Australian assets. The current order book for Bucyrus in Australia stands at RM2 billion (to be delivered over the
next 18 to 24 months). This adds to Sime’s existing order book of RM3.5 billion for the industrial segment, providing good earnings visibility.
We understand Sime is buying the Bucyrus assets at about 10 times enterprise value/earnings before interest, tax, depreciation and amortisation (EV/Ebitda). At 10 times EV/Ebitda, the additional Ebitda contribution to Sime is about RM110 million.
Assuming about 4% borrowing cost and 25% corporate tax rate, the incremental profit to Sime is some RM50 million per year, raising our FY12 to FY14 net profit by 1% to1.6%. This excludes potential synergies that Sime could tap into post the merger of operations in Australia. — Maybank IB Research, Dec 15
