Sime Darby motor division likely to face pressures from China ops

RHB Research forecasts that Sime Darby’s auto sales volumes would likely soften quarter-on-quarter due to the high base in the first quarter of its financial year 2023.

PETALING JAYA: Sime Darby Bhd’s motor division may face near-term pressures for its China’s operation with margins normalising on recovering supply chains and softer demand for cars, says RHB Research.

After a recent meeting with the conglomerate, the research house said the group’s margins would likely normalise to pre-pandemic levels of between 2% and 3%, against the pandemic level between 3% and 5%.

Additionally, it forecast that Sime Darby’s auto sales volumes would likely soften quarter-on-quarter due to the high base in the first quarter of its financial year 2023.

“That said, we are still expecting year-on-year growth in auto sales volumes, driven by Beijing’s pro-growth policies, new electric vehicle (EV) launches and recovering supply,” the research house noted.

However, Sime Darby’s Australasia industrial unit is set to benefit from the easing tension between China and Australia.

“With Beijing’s policy support and high consumer savings, the ailing property sector may slowly turn around.

“We think that the sector’s recovery will likely be gradual, as both the property oversupply and shaky consumer confidence persist,” it added.

On a positive note, RHB Research expects a special dividend from a recent asset sale.

On the motor division, the research house stated that Sime Darby is targeting to sell 3,000 units of the BYD Atto 3, an EV model.

Given the current soft EV demand in Malaysia, RHB Research said it may be challenging to achieve the target.

Within the first month of its launch in Malaysia, the Atto 3 saw 1,500 orders, proving to be a popular option.

Meanwhile, Sime Darby is also working towards launching the BYD Dolphin, Seal and e6 in 2023.

With the existing import and excise duty exemption for completely built-up EVs, BYD has no incentive to assemble its cars locally.

On this, RHB Research opined that the car maker will only consider assembly operations in Malaysia or completely knocked-down units, if there is high EV adoption in the Asean region.