• We favour Sime Darby Berhad due to (i) its strong partnership with premium brands, (ii) structural growth into mass-market via UMW acquisition, and (iii) proxy for upcycle in mining activities.

• While the company is affected by the ongoing 'EV price wars' in China, we think the acquisition of UMW will enhance its earnings quality from motor segment moving forward.

• The company has maintained dividend payout of 60% to 80% during FY19-FY23. Looking forward, we expect the company to distribute DPS of 13-15sen, translating to a dividend yield of 5-5.7% for FY24F-FY26F.

• We initiate coverage on Sime Darby with a BUY call and TP of RM3.00, pegged at 12x PER to FY25F EPS of 25 sen.

A Leading Multinational in Asia-Pacific

Sime Darby Berhad is a leading trading company in the Asia-Pacific region, partnering with premium auto and industrial brands. As a multinational with a diversified portfolio in Malaysia, Australia, China, and Southeast Asia, its strategic geographical spread allows it to mitigate market risks. Following the acquisition of UMW Holdings, the company significantly enhanced its market share in the Malaysian auto industry to 58% (from 3%) in FY23. This boosts its resilience and reduces its reliance on the Chinese market and balancing contributions from key regions.

Proxy to Upcycle in Mining Industry

The upcycle in mining activities in Australia is propelling growth in its industrial segment. The elevated commodity prices such as Metallurgical coal exceeding the breakeven cost of USD80/mt has spurred investment in mining equipment. Similarly, the global push towards green energy is creating demand for metals such as aluminium, copper, and tin, further boosting the need for mining equipment.

Earnings Forecast

We project Sime Darby’s earnings to grow at a 3-year compound annual growth rate (CAGR) of 15.3% to RM1.9bn over 2023-2026. This growth is underpinned by the full-year consolidation of UMW, potential recovery in the Chinese market as well as healthy order book in the industrial division.

Initiate with a ‘BUY’ call and TP of RM3.00

We initiate coverage on Sime Darby Berhad with a BUY call and TP of RM3.00. This is based on average 3-years historical forward PE of 12x that is pegged to FY25F EPS of 25 sen. We think this is fair supported by the structural growth from UMW acquisition.

Source: BIMB Securities Research - 26 Jul 2024