Time for another look at Sime Darby


Sime Darby’s automotive business is well-positioned to ride on the rise of the BMW brand in China, while industrial earnings should remain robust from expectations of a structural improvement in commodity prices and a pick-up in construction activities.

PETALING JAYA: The time could be right for investors to re-look at Sime Darby Bhd, given that things have improved macroeconomically.

Sime Darby’s automotive business is well-positioned to ride on the rise of the BMW brand in China, while industrial earnings should remain robust from expectations of a structural improvement in commodity prices and a pick-up in construction activities.

“Due to the improving macroeconomic environment, it is now the right time for investors to re-look at Sime Darby, which offers exposure to cyclical sectors – automotive, construction, and mining – in the Asia-Pacific, “ said RHB Research, which has upgraded the company to a “buy” from a “neutral.”

Calling it the “Asian bellwether”, the research house said Sime Darby would benefit from the improving macroeconomic environment, as countries it has operations in recover from Covid-19-related lockdowns.

“Asian countries, in general, have been outperforming their western counterparts in curbing the spread of the virus.

“China and Australia - Sime Darby’s two largest markets - continue to report low number of cases, as business sentiment normalises, ” it pointed out to its clients.

In China, for example, BMW sales have rebounded sharply after the economic re-start, driven by pent-up demand and improving consumer sentiment, according to RHB.“The brand moved 212,879 units in 2Q20, up 17% year-on-year and 83% quarter-on-quarter.

“The price war between luxury brands that previously affected the margin of Sime Darby’s China motor unit has eased, it said. It added that it believed Sime Darby would continue to benefit from BMW Group’s strategy of investing in China’s automotive market. RHB’s target price for the Sime Darby stock is RM2.75, up from RM2.10 previously.

It closed at RM2.41 yesterday.

RHB cautions that further weakness in the coking coal price might pose a downside risk to its industrial division’s profitability.

Similarly, a resurgence of Covid-19 cases in Sime Darby’s operating countries presents another key downside risk to its recommendation and earnings forecasts.

For now, it believes the worst is over for Sime Darby, and that the group is increasingly well-positioned to ride on the economic recovery in Asia.

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