PETALING JAYA: UOB Kay Hian Research (UOBKH Research) predicts that Sime Darby Bhd will achieve a compounded annual growth rate (CAGR) of 14.8% from the fiscal year ending June 30, 2023 (FY23) to FY26.
The positive outlook is supported by Sime Darby’s recent strategic acquisitions, notably UMW Holdings Bhd, and anticipated recovery in the Chinese market.
In its coverage initiation on Sime Darby, UOBKH Research recommends a “buy” rating with a target price of RM3.13, based on 12.2 times the estimated price-earnings ratio for FY25.
According to UOBKH Research, Sime Darby stands to benefit significantly from its acquisition of UMW, particularly in the motor vehicles segment, by capitalizing on broader opportunities in customers’ car-replacement cycles.
UOBKH Research highlighted that Sime Darby’s recent acquisitions, combined with the rebound in the Chinese market, support the projected three-year CAGR of 14.8% from FY23 to FY26.
Following the acquisition of UMW, Sime Darby now commands a leading 58% market share in Malaysia’s automobile industry, up significantly from 5% in FY23, driven primarily by Perodua and Toyota brands.
In China, where premium and luxury vehicles dominate, Sime Darby holds a modest 5% market share. The company’s revenue from Malaysia and China together contributes 66% of the motor-vehicle division’s revenue, while Australasia and other Southeast Asian countries contribute the remaining 34%.
This diversified market presence provides a robust revenue base that helps mitigate risks associated with regional economic fluctuations, according to UOBKH Research.
While Sime Darby’s motor-vehicles division experienced a slowdown in China, its largest revenue contributor, there is considerable growth potential in the luxury vehicle market.
Despite challenges such as supply chain disruptions and price competition affecting margins, Sime Darby plans to expand its sales networks and introduce higher-margin products.
In its industrial division, which accounts for 35% of Sime Darby’s total revenue, growth will continue to be driven by overseas markets, particularly Australasia, supported by a stable order book fueled by strong demand in the mining sector and steady commodity prices.
Although commodity prices are projected to soften, UOBKH Research expects continued positive momentum in order book replenishment due to increased demand for metals driven by renewable energy trends and recovery in China’s construction industry.
Sime Darby’s strategic focus on acquisitions and divestments aims to strengthen its vehicles and industrial businesses, achieving a more balanced revenue distribution across key markets including Malaysia, China, and Australasia.
UOBKH Research also noted that divestment of non-core assets would further enhance the company’s financial position, with assets like Komatsu, Malaysia Vision Valley land, and UMW’s Serendah land potentially being put up for sale in the future.
