KUALA LUMPUR: CGS-CIMB Equities Research sees better-than-expected margin delivery by the motor division and higher coking coal prices as potential catalysts for Sime Darby.

       In its report on Thursday, it is retaining its add rating for Sime Darby with an unchanged RM2.80 sum-of-parts based target price.

       “Sime Darby trades at 12.7 times CY21F P/E, which is below its three-year historical mean of 16 times, and offers an attractive 5.9% CY21F dividend yield, ” it said.

       Sime Darby is acquiring a 100% stake in Australian-based Salmon Earthmoving Holdings (Salmon Australia) for A$104mil (RM327mil) via internal funds and borrowings.

       The acquisition price implied 5.6 times FY21F enterprise value/earnings before interest, tax, depreciation and amortisation (EV/Ebitda) and 10.4 times FY21F price-to-earnings (P/E). The group expects Salmon to contribute A$13mil (RM41mil) PBIT per annum.

       Salmon Australia provides heavy and industrial equipment rental and maintenance services for the civil construction, agricultural and mining sectors in Australia. Sime Darby will also retain Salmon Australia’s management team under the acquisition agreement.

       The group expects to complete the deal by August 2021, pending regulatory approval from the Australian Foreign Investment Review Board.

       “Sime Darby believes Salmon Australia provides a good opportunity to complement its industrial equipment division, given that it creates a new monetisation stream to capture a higher wallet share from the Australian miners through expansion into adjacencies, such as rental, hard chrome and diversification of other OEM brands.

       “The group highlighted that the acquisition will also help expand its industrial equipment offerings into the construction segment, given that Salmon Australia already has strong existing relationships with civil constructors in Australia, ” it said.

       Maybank Research said Sime Darby currently derives 70% of its Australian industrial division sales from mining activities.

       “Overall, we think this is a good diversification strategy for Sime to strengthen its position as a leading integrated industrial equipment service provider in Australia.

       “Moreover, we gather that Salmon Australia also offers a double-digit PBIT margin, higher than the blended industrial division’s PBIT margin of 5-6%, ” it said.