PETALING JAYA: Sime Darby Bhd
is still in high gear for attractive dividends despite potential headwinds in its core businesses.
This is amid the heightened risks on the global economy with the United States’ wide-scale tariffs on imported goods.
The most punitive tariff rate is 145% on Chinese products, while China retaliated with 125% on US goods.
Thus, Sime Darby’s industrial segment faces potential headwinds from softening demand for equipment amid a broader slowdown in the basic materials sector, said Hong Leong Investment Bank (HLIB) Research in a report yesterday.
Based on the group’s latest first half of financial year 2025 (1H25) results, Sime Darby’s industrial segment performance was relatively weak year-on-year.
It was dragged by price adjustment factors in Australia.
Nevertheless, the group’s latest order book at the end of December 2024 remained at a record high of RM4.8bil.
Out of the total order book, Australia stood at RM2.7bil, the research house noted.
“However, we expect the market to potentially moderate, in tandem with the anticipated demand slowdown for commodities as the global economy softens and we are already seeing a pullback in coking coal prices,” it added.
Besides, the Chinese market remains subdued, compounded by intense competitive pressures from leading domestic original equipment manufacturers (OEMs) such as XCMG, Sany and Zoomlion.
On a more positive note, HLIB Research said Malaysia’s market has seen some pick-up in order book since end-December 2022 for power and energy systems.
In short, the segment is likely to mimic any tepid global economic trend, it added.
As for the motor business, the research house said it is seen to stay subdued, with the UMW segment potentially facing a deceleration in the coming quarters.
It noted that China being Sime Darby’s largest market for motor remains weak, affected by ongoing price discount competition.
“While heavy discounting drives up the sales volume, margins will become thinner and affect profitability.
“Similar market weakness can be seen for Malaysia, Australia, New Zealand and Thailand,” it pointed out.
Singapore’s market, on the other hand, remains relatively strong, supported by strong demand for BYD models.
Sime Darby had previously guided for focus on cost optimisation, facilities utilisation and strategic network consolidation in China.
Meanwhile, the business of newly acquired UMW was mainly anchored by Toyota and Perusahaan Otomobil Kedua Sdn Bhd (Perodua), as both OEMs achieved new record high sales in 2024.
“However, we anticipate sales to drop in 2025, in tandem with the overall market slowdown as well as increasing competitive pressures from Chinese OEMs,” said HLIB Research.
Both Toyota and Perodua have also provided lower sales targets of 90,000 units and 345,000 units, respectively, in 2025 versus 100,700 units and 358,100 units recorded in 2024.
Post-revision on the heightened risk of the global economic slowdown, HLIB Research said it has cut Sime Darby’s target price to RM2.36 per share from RM2.65 previously.
“However, we still maintain a ‘buy’ recommendation on Sime Darby due to the group’s attractive dividend yield of 6.3% for the financial year 2025 (FY25)-FY26.”
