PETALING JAYA: Sime Darby Bhd
’s unit Sime Darby Industrial (SDI) is emerging as a key growth engine, fuelled by its strong performance in Australia, rising capital expenditure in mining, strategic commodities diversification and growing contribution from high-margin after sales and rental services.
According to CIMB Research, SDI accounts for 63% of the group’s revenue with solid profit before interest and tax (PBIT) margins and a potential stand-alone valuation of RM10bil to RM12bil.
The research house recently visited Sime Darby’s industrial and motor-vehicle operations in Brisbane and Mackay, Australia that revealed valuable insights into key revenue drivers and long-term growth opportunities in the Australian market.
Australia remains one the group’s most important growth engines, contributing 53% of Sime Darby’s core PBIT and 33% of revenue in its financial year 2024 ended June 30 (FY24) .
Within the industrial division, Australian operations accounted for 77% of SDI’s revenue and 87% of its core PBIT in FY24, up from 60% and 67%, respectively, in FY19.
SDI is one of the world’s top two dealers for Caterpillar heavy equipment and has delivered strong growth, driven by its Australian operations, rising spending for mining, and strategic acquisitions.
A key contributor to margin expansion is the growing share of higher-margin after sales and rental services, which now account for 63% of revenue and deliver two to three times the margin of equipment sales.
“The segment provides annuity-like returns, supported by a growing installed base and multiple machine rebuild cycles,” noted CIMB Research.
“We estimate SDI could be worth RM10bil to RM12bn, based on a trailing 2024 price-earnings ration of 15 times to 18 times, representing between 69% and 82% of Sime Darby’s current market capitalisation of RM14.7bil. In our view, a re-rating is warranted, underpinned by SDI’s strong fundamentals, resilient earnings and attractive margin profile.”
With accelerating digitalisation, expanding aftermarket penetration, and infrastructure-driven tailwinds, CIMB Research said SDI presents a compelling industrial pure play with monetisation potential.
The research house reiterated a “buy” call on Sime Darby with an unchanged target price of RM3.
“Our growth outlook is underpinned by resilient performance from the industrial segment, a turnaround in its China operations, and improved cost optimisation following the integration of UMW Holdings Bhd,” it added.
The stock also offers attractive dividend yields of 7% and 7.3% for 2025 and 2026, respectively, based on an average dividend payout of 70%.
