Sime Darby auto market share, earnings to grow on UMW acquisition

KUALA LUMPUR: Analysts are revising their projections for Sime Darby Bhd following its takeover of UMW Holdings Bhd, which has been suspended from trading on Bursa Malaysia effective today.

Kenanga Research, which maintained its "outperform" recommendation on the share, raised its FY24-25 net profit forecasts on Sime Darby by 2% and 14% respectively, on earnings enhancement from UMW's acquisition.

It also upgraded its sum-of-parts target price by 14% to RM2.80 from RM2.45 previously.

The research firm noted that following the completion of the takeover, Sime Darby's presence in the local automotive market will be expanded to the mid-market via Toyota and the affordable segment via Perodua.

it said this puts the group in a better position to navigate the impending fuel subsidy rationalisation, as well as benefit from the anticipated new launches of the Perodua D66B and Toyota Yaris Cross by April 2024.

Post-acquisition, Sime Darby's market share in the local automotive industry will surge from 3% to more than 50%, said Kenanga.

"UMW provides access to the massive Toyota ecosystem, a strong high-value supply chain and will enhance SIME’s local market exposure.

"Geographically, Sime Darby will have equal exposure to Malaysia, China and Australia with remaining 10% in other markets vs. being predominantly in China previously," it added in its company update.

On balance sheet, Sime Darby's net debt and net gearing will increase from RM3,995mil to RM5,877mil and 0.2x to 0.4x respectively (including UMW's net cash position of RM1,118mil).

According to Kenanga, Sime Darby plans to pare its debt through the disposal of Malaysia Vision Valley land in Labu, Negeri Sembilan, and the disposal of Komatsu and UMW's Serendah land.

In a separate report, TA Securities Research said the Sime Darby-UMW deal could be the new benchmark valuation for future mergers and acquisitions in the automotive sector.

"Based on the offer price of RM5.00/share, the implied forward PER and P/B ratios work out to 14.6x and 1.1x CY24 earnings and book value respectively," it said.

The research firm ceased coverage on UMW with its last target price benchmarked to the offer price of RM5 a share by Sime Darby.