By Chan Quan Min
Sime Darby is expanding its automotive distribution business into Vietnam in a deal worth RM114 million. However, the deal is not expected to make any material impact on the company’s earnings or net assets in the near-term.
In a regulatory filing last Friday, Sime Darby announced the company had entered into an agreement to acquire a 90% effective interest in Europe Automobiles Corporation (EAC), the sole distributor or BMW and MINI vehicles in Vietnam.
More specifically, Sime Darby’s wholly owned subsidiary, Sime Singapore Ltd agreed to buy 89.15% of EAC’s parent, Europe Automobiles Corporation Holdings Pte Ltd for US$29.59 million (RM93.73 million) and 16.02% of EAC for 134.8 billion Vietnamese Dong (RM20.22 million).
The agreement is conditional upon approval of the relevant importer contracts and, according to Sime Darby’s Friday statement, and should be completed by Nov 8 this year.
Hong Leong Investment Bank, in a research note today said the deal was positive to the company as it “allows Sime Darby to penetrate the growing luxury automotive industry in Vietnam where the car-to-population ratio is still low at 18:1,000 vs. Southeast Asia’s average range of 50:1,000 to 80:1,000.
CIMB research also viewed the deal as positive to the conglomerate: “Following this acquisition, Sime Darby will be able to gain immediate exposure to the Vietnamese automotive market, and, at the same time, strengthen its partnership with BMW AG globally.”
Sime Darby is a joint venture partner with BMW AG (Germany) in locally incorporated BMW vehicle distributor BMW Malaysia Sdn Bhd.
The joint venture has proven to be extremely lucrative with BMW Malaysia Sdn Bhd registering a pre-tax profit of RM242.3 million on sales of RM1.6 billion for the 2012 financial year.
BMW Malaysia’s pre-tax profit margin, based on a crude calculation of reported numbers was an industry topping 15% in 2012 down seven percentage points from last year.
Despite the buzz, the acquisition of the Vietnamese distributorship rights to BMW is not expected to cause even a ripple to Sime Darby’s bottom line in the near future.
According to last Friday’s company issued regulatory filing, “the proposed acquisitions will not have a material effect on the earnings or net assets of the Sime Darby Group for the financial year ending 30 June 2014.”
CIMB concurred with Sime Darby’s statement today, believing the move would not impact near-term earnings.
“We are neutral on this acquisition and anticipate a muted impact on Sime Darby’s share price following this news.
“The acquisition is in line with the group’s vision to be a leading automotive player in the Asia Pacific region,” said CIMB Research analyst Ivy Ng Lee Fang in summary.
CIMB Research held their target price for the stock at RM10.47. Public Investment Bank’s research arm had a lower target price of RM9.37 while Hong Leong Investment Bank’s was lower still at RM8.73.
All three research houses maintained their respective ‘neutral’ or ‘hold’ ratings.
As at 2:30 pm today Sime Darby was trading unchanged on Bursa Malaysia at RM9.52.
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