PETALING JAYA: Sime Darby Bhd
, which controls about 60% of distribution in the local automotive market through Sime Motors, is trading at a “cheap” valuation, say analysts.
Kenanga Research has a bullish outlook on the stock after the automotive distributor unveiled its target of achieving returns on equity (ROE) of 11% by 2030.
The company currently trades at 11 times its forward price-earnings ratio versus its five-year historical average of 13 times.
The research house had previously expected an ROE of 6% for the group’s financial years 2025 (FY25) and FY26.
Sime Darby’s target of 11% ROE, which was unveiled at its Corporate Investors Day last week, banks on its world’s leading brands, coupled with the cost-optimisation strategy and closer cooperation with specialist equipment hire provider Onsite Rental Group, Caterpillar heavy equipment distributor Cavpower Group and UMW Holdings Bhd.
Kenanga Research said that Sime’s presence in the local automotive market has expanded into the mid-tier and affordable segments with Toyota and Perodua since its acquisition of UMW in 2023.
Previously, Sime had predominantly offered premium vehicles, being a distributor of BMW cars in Malaysia.
UMW was delisted from Bursa Malaysia in last February after being taken private by Sime.
By having a more balanced offering under its automotive segment, Sime is in a better position to navigate the impending subsidy rationalisation for RON95 petrol expected to take place in June, said Kenanga Research.
“Moreover, Sime will likely benefit from the anticipated new launches of the all-new Perodua Myvi, Perodua D66B and its sister model, the Toyota Yaris Cross, and a Perodua electric vehicle (EV), this year.
“Meanwhile, it is bullish on the China market in the long term, with a China-for-China strategy led by the new BMW Neue Klasse EV which is set for production next year with special designs and functions for China, as well as a cost-optimisation strategy in place that will see the the closure of non-performing dealerships, special rebates and lower volume target from BMW.
“The discount competition in China is gradually easing with the number of price cuts on cars having significantly decreased recently,” the research house said in a note.
The research house also pointed out that Sime remains optimistic about the Australian mining sector in the face of various tariffs.
In response to reduced Chinese demand amid various tariff restrictions, Australia has expanded its metallurgical coal market to other countries such as India, Japan, South Korea and Taiwan over the years.
The health of the mining sector in Australia is key to Simey’s sales of Caterpillar heavy equipment.
Its industrials segment significantly boosted revenue to RM20.4bil in FY24, with high-margin after-sales services boosting the segment’s profit to RM1.4bil.
“We like Sime for being the automotive leader in Malaysia while balancing out the cyclical demand in other regions, being a proxy to the Australian mining sector, and the strong brands under its stable such as BMW, Caterpillar, Toyota and Perodua.
“It also offers an attractive dividend yield of 6%.”Kenanga Research has maintained an “outperform” call on Sime, with a target price of RM2.90 per share. The stock closed at RM2.25 yesterday.
