Sime Darby has announced collaboration with Porsche AG to assemble CKD Porsche in Malaysia. We are overall positive on the new collaboration in line with the group’s strategy to further strengthening its industrial and motor segments. While we do not expect material earnings contribution at the starting stage, we believe the facility will eventually expand for export market and further improve Porsche sales volume in the region. Maintain BUY recommendation on Sime Darby with unchanged TP: RM2.68 based on 10% discount to SOP: RM2.97, due to the group’s sustainable earnings from Australia industrial segment (mainly mining sector) and China motor segment.

NEWSBREAK

Sime has announced that it will partner Porsche AG to assemble sports cars for the Malaysian market only. The new Porsche assembly facility will be the first assembly plant of the German sports car manufacturer outside of Europe, with production scheduled to begin in 2022.

HLIB’s VIEW

Positive. We are overall positive on the new collaboration with Porsche (part of VW AG), in line with Sime Darby’s long term strategy of strengthening its core segments of industrial equipment and motor. We believe the eventual plan is for the new assembly plant to cater for Porsche Asia Pacific market (ASEAN + New Zealand + Sri Lanka + Mongolia + French Polynesia + New Caledonia). It was previously rumoured that Porsche intended the new facility to cater for SUV segment. We expect the collaboration to be undertaken through Inokom (56% subsidiary of Sime), which is the existing contract assembly arm of Sime group, with existing CKD portfolio for BMW, Mini, Hyundai and Mazda (collaboration with Mazda Malaysia).

Forecast. We expect the collaboration to only start contribution to Sime in FY06/23. Our back of envelop calculation has estimated a net contribution of RM1-2m per annum at starting stage (immaterial to the group’s existing earning base of RM1.1- 1.2bn per annum). On a more positive note, the availability of CKD may further improve Porsche sales volume in Malaysia.

Maintain BUY, TP: RM2.68. We maintain BUY recommendation with unchanged TP of RM2.68, based on unchanged 10% discount to SOP of RM2.97, as we expect Sime Darby will continue to leverage on Australia’s mining sector and recovery of China market to sustain earnings. We also expect a continued decent dividend yield of 4.2% for FY22-23

Source: Hong Leong Investment Bank Research - 1 Sept 2021