Sime Darby announced that the Group, together with its partner Ramsay Healthcare Limited (Ramsay) had entered into a Sale and Purchase Agreement (SPA) with Columbia Asia Healthcare SB (Columbia Asia) for the disposal of 100% equity interest held in Ramsay Sime Darby Health Care SB (RSDH) for a cash consideration of RM5.68bn. We view the disposal price estimated at EV/EBITDA of about 20x to be fair, in line with our value of the company’s healthcare division. We are positive on the deal as it will unlock value of a non-core asset and further strengthen its core businesses of industrial and motors, while also paring down borrowings for the acquisition of UMW Holdings Bhd (UMW). Nevertheless, we make no changes to our earnings forecast as the disposal will have minimal impact on its earnings. We retain our Neutral call on Sime Darby with an unchanged sum-of-parts (SOP) based TP of RM2.37.

• Proposed disposal. RSDH is a 50:50 indirect joint venture between Sime Darby and Ramsay. Accordingly, Sime Darby will be disposing its entire 50% equity interest held in RSDH for cash consideration of RM2.8bn. The net proceeds are expected to be utilised to pare down borrowings arising from the UMW acquisition. The proposed disposal is expected to be completed by end of 3QFY24 (1QCY24).

• Parties involved. Columbia Asia is a Malaysian-based international private healthcare company with 22 medical facilities across Asia, of which 14 are in Malaysia. It is jointly-owned by Malaysian conglomerate, the Hong Leong Group and One Health Holdings (OHH) which is owned and controlled by TPG-managed funds.

• Financial Impact. We view the disposal price of RM5.68bn to be fair at approximately 20x EV/EBITDA, compared to past transactions valuing healthcare assets at 22-24x. We view this disposal positively as it is in line with plans to monetize its non-core assets with estimated net gain on disposal of RM2.0bn (29.7sen per share). The deal will also allow the Group to streamline its portfolio and provide capital to further strengthen its core business of industrial and motors. Upon completion, Sime Darby will no longer derive any share of profits from RSDH. The audited share of profit from RSDH in FY23 amounted to RM57m.

Source: PublicInvest Research - 14 Nov 2023