PETALING JAYA: Following its recent visit to Sime Darby Bhd
’s Caterpillar plant in Puchong, Hong Leong Investment Bank (HLIB) Research has turned “more positive” on the group’s industrial segment outlook.
In a note, the research house said the segment will be driven by the strong demand for power systems in Malaysia, mainly to support data centre development, as well as the margin recovery in Australia – led by the parts price hike effective July 2025.
“During the recent results briefing, management reiterated robust demand for power systems in Malaysia, with similar positive trends being observed in Singapore and China.”
In financial year 2025 (FY25), Sime Darby’s Malaysia Industrial sub-segment recorded a revenue of RM1.27bil [up 4.9% year-on-year (y-o-y)] and profit before interest and tax (PBIT) of RM106mil (up 80% y-o-y), driven primarily by strong performance in the energy and transportation (E&T) sub-segment.
Growth was led by higher-margin demand for backup power generators, particularly for data centre developments, while the equipment sub-segment remained stable.
Sime Darby currently holds around 40% market share in backup power solutions for Malaysia’s data centre sector.
Looking ahead, E&T’s revenue contribution is expected to exceed 60% of the industrial segment in FY26, versus around 40% historically, underpinned by sustained data centre demand.
As for Sime Darby’s Australia Industrial sub-segment, it saw a strong rebound in the fourth quarter of FY25 (4Q25), delivering a record-high quarterly PBIT of RM356mil and a margin of 10.2%.
This was driven by margin normalisation, following the lowered parts price adjustment in January 2025 and the clearance of older inventory in 3Q25.
“We understand that Caterpillar Principal has approved higher parts pricing effective July 2025.
“As a result, we expect the segment to achieve a new record-high margin in 1Q26, supported by the price hikes and lower inventory costs.
“We note that the average equipment lifecycle generates 2.2 times the value of the initial equipment sales price over 10 years, with aftersales services contributing 1.2 times of that value – typically at higher margins than equipment sales.
“This underpins a growing aftersales revenue mix in the coming years, which should further enhance group margins,” stated HLIB Research.
Separately in China, Sime Darby’s largest market for its Motors segment, the research house said positive signs are emerging.
It is noteworthy that the China market had remained soft for Sime Darby in recent quarters due to ongoing price discount competition.
“However, we are turning less bearish on the China Motors outlook, supported by several key developments: the Chinese central government has intervened to curb irrational price wars; BYD recently reported a significant decline in net profit (minues 27.7% quarter-on-quarter, minus 30.5% y-o-y) and announced production cuts.
“There is continued strong support from the BMW Principal as well as the introduction of Neue Klasse models.”
As for Sime Darby’s automotive segment, UMW, HLIB Research expects sustainable strong contributions in coming quarters.
This will be underpinned by seasonally stronger Perodua and Toyota sales volume in the second half period.
“We have also seen a turnaround of its manufacturing segment and a rebound in the equipment segment, which we understand should further improve in upcoming quarters.”
With Sime Darby’s business across all segments gaining momentum, HLIB Research foresees the group delivering sustained dividend payouts.
“We expect Sime Darby to maintain its core dividend payout of 13 sen for the FY26 and FY27, indicating an attractive dividend yield of over 6% for FY26 to FY27.”
For FY25, Sime Darby has declared a total 14 sen dividend, including a one-sen special dividend from the disposal of Ramsay Sime Darby Health Care Sdn Bhd.
Also, given the improving outlook for Sime, HLIB Research believes there is a strong likelihood it will retain its position as a constituent of the FBM KLCI.
Based on current market capitalisation, Sime Darby has risen to RM14.7bil, surpassing PPB Group Bhd (RM14.4bil) and approaching MR DIY Group (M) Bhd (RM14.8bil).
Westports Holdings Bhd, currently on the FBM KLCI reserve list, holds a market cap of approximately RM18.4bil, placing it at the 27th position by size.
Meanwhile, the highly anticipated MMC Ports initial public offering, initially expected to debut with a market cap of RM25.3bil, appears to have been postponed.
“We maintain our ‘buy’ recommendation with an unchanged target price of RM2.50. Sime Darby will continue to leverage the strong momentum of its industrial segment.”
