UOBKH Research said the optimistic outlook is underpinned by the conglomerate’s recent value-accretive acquisitions.
PETALING JAYA: Sime Darby Bhd
is projected to expand at a compounded annual growth rate (CAGR) of 14.8% from the financial year ended June 30, 2023 (FY23) to FY26, according to UOB Kay Hian Research (UOBKH Research).
The research house said the optimistic outlook is underpinned by the conglomerate’s recent value-accretive acquisitions, including UMW Holdings Bhd, as well as the projected recovery in China.
Initiating coverage on Sime Darby, UOBKH Research has a “buy” rating on the company, with a target price of RM3.13 pegged at 12.2 times its estimated price-earnings ratio for FY25.
“Sime Darby is poised to benefit from UMW, seizing broader opportunities in customers’ car-changing cycles in its motor-vehicles unit,” the research house said.
“The contribution from Sime Darby’s recent acquisitions, including the value-accretive acquisitions along with the recovery in the China market, underpins our projected three-year CAGR of 14.8% in FY23-FY26,” it added.
UOBKH Research noted that following the acquisition of UMW, Sime Darby now has a leading 58% market share of Malaysia’s automobile industry, up from 5% in FY23.
“This growth, particularly driven by Perodua and Toyota, has extended its brand portfolio across various customer segments,” the research house said.
“Conversely, in China where premium and luxury vehicles dominate, the group holds a meagre 5% market share. Malaysia and China together will contribute 66% of the motor-vehicle division’s revenue, while the remaining 34% will come from Australasia and other South-East Asian countries.
“This diversified market presence offers a solid revenue base, aiding in mitigating risks associated with economic fluctuations in specific regions,” UOBKH Research added.
The research house said while Sime Darby’s motor-vehicles division had seen a slowdown in China, its largest revenue contributor, there was significant growth potential in the luxury market.
It added that despite challenges like supply chain disruptions and price wars leading to margin declines, Sime Darby had plans to expand its sales networks and introduce higher-margin products.
As for the industrial division that accounts for 35% of Sime Darby’s total revenue, overseas markets, particularly Australasia, would continue to drive growth.
“It is buoyed by a stable order book driven by strong demand in the mining sector and steady commodity prices.
“Despite projections of softer commodity prices, we expect the positive momentum of order book replenishment to continue, supported by the company’s recent acquisitions, increased demand for metals due to renewable-energy trends, and the recovery in China’s construction industry,” UOBKH Research said.
It pointed out that Sime Darby had strategically pursued acquisitions and divestments to strengthen its vehicles and industrial businesses, aiming for a more balanced revenue distribution across key markets including Malaysia, China and Australasia.
The group’s divestment of non-core assets, on the other hand, could continue to enhance its financial health, with remaining assets like Komatsu, Malaysia Vision Valley land and UMW’s Serendah land potentially going up for sale in the future, UOBKH Research said.
