CGSI Research said Sime Darby’s valuations are compelling at 10 times FY26’s price-earnings ratio, and attractive 7% dividend yields for FY26 and FY27.
PETALING JAYA: CGS International Research (CGSI Research) expects Sime Darby Bhd
’s prospects to remain resilient given its long-term earnings sustainability and stable dividend profile, despite market headwinds.
In a note to clients, the research house said it upgraded the stock to an “add” call, as it raised the conglomerate’s earnings per share by 0.2%, 2.7% and 2.3% for its financial years ending this June 30 (FY26), FY27 and FY28, respectively.
This was to factor in Sime Darby’s higher market share in the motor segment for FY26 to FY28, stronger-than-expected total vehicle sales for last year, and improving industrial margins, the research house said.
“We raise our rating as we expect improvement in the industrial division, deferment of a new method to calculate excise duties on completely knocked down vehicles, and Perodua’s resilient market share supporting contributions to Sime Darby,” CGSI Research said.
It added that Sime Darby’s valuations are compelling at 10 times FY26’s price-earnings ratio, and attractive 7% dividend yields for FY26 and FY27.
During the CGS International Malaysia Corporate Day event earlier this month, the research house said Sime Darby’s management highlighted sustained demand for commodities and mining equipment in Australia.
“We expect improvement in its industrial segment for FY26, underpinned by elevated copper prices, which should support mining activity and equipment demand in Australia,” CGSI Research said, adding that a price increase for parts from construction, mining and engineering equipment manufacturer Caterpillar last July is also expected to provide margin improvement.
An automotive-sector analyst said she expects Sime Darby’s industrial segment to benefit from growing data centre investments in Malaysia, supported by Caterpillar’s strong market share for heavy equipment used in the construction of data centres.
“We think the improvements across both Malaysia and Australasia should lift contributions from its industrial-segment in FY26,” she said.
However, a potentially stronger ringgit versus the Australian dollar may weigh on translation gains, partially offsetting the operational improvements.
CGSI Research said the latest deferment to to July for a new method to calculate the open market value and excise duties for locally assembled vehicles could spur another round of demand for cars in the first half of this year.
“The deferment benefits Sime Darby, in our view, given that its brands such as Toyota, Perodua and BMW are mainly assembled locally,” it added.
The Malaysian Automotive Association (MAA) announced that total vehicle sales reached a high of 820,752 units last year, reflecting a combination of sales being brought forward ahead of tax hikes and additional underlying demand.
Notably, Perodua’s market share stood resilient at 44% last year, according to MAA.
CGSI Research said “We believe the market is underestimating the resiliency of Perodua’s market share despite the growing demand for electric vehicles.”
Perodua’s market share will likely remain stable at around 44% for this year, with its strong presence in the affordable, mass-market segment.
This supported the contributions from Sime Darby’s subsidiary UMW Holdings Bhd, which has a major stake in Perodua, amid a competitive automotive sector, CGSI Research said. It has a target price of RM2.38 per share for Sime Darby.
