PETALING JAYA: With several planned acquisitions, Sime Darby Bhd
(SDB) will potentially have new meaningful recurring income streams alongside wider product segments.
SDB’s recent merger and acquisition announcements such as UMW Holdings Bhd will see it gain exposure to the mass market car industry in Malaysia.
According to UOB Kay Hian (UOBKH) Research, Perodua and Toyota are well suited for the majority of Malaysians’ affordability and these brands capture about half of the total industry volume share in the passenger car segment over the last three years.
“It offers the group a new meaningful recurring income stream with the after-sales services alongside geographical cross-selling,” it said.
Apart from that, the research house highlighted two other significant acquisitions.
These are the acquisition of Onsite which is aimed at strengthening its existing industrial portfolio and the acquisition of Cavpower in August 2023, which expands its geographical presence in Australia.
“The industrial segment will also see a wider product offering with Toyota Forklifts that gives it exposure to material handling and complements its established footprint in natural resources and construction,” it said.
“We believe this expansion will help mitigate the impact of lower-than-expected economic recovery in China, as it balances its market presence across regions in Malaysia and Australasia,” the research house added.
After the completion of UMW’s acquisition, UOBKH Research anticipates that the contributions will be more evenly distributed at 30% each from the three major countries that contribute to its revenue, namely Malaysia, Australasia and China.
This as it noted that the group eventually will be mainly driven by UMW’s automobile segment.
“Note that 82% of UMW’s revenue is derived from the automobile segment, largely due to strong Toyota and Perodua sales in the Malaysian market.
“This shift is expected to help the group achieve a more balanced footprint in Malaysia,” it said.
Presently, China and Australasia contribute to about 35% and 37% of the group’s revenue respectively, while Malaysia contributed 16% and South-East Asia at 12%.
It also noted UMW’s aerospace segment, which is expected to perform better with an improvement in the delivery of fan cases that would exceed 100% in the first half of 2023, compared to the previous year.
“Meanwhile, further improvement could come from progress in the production of the second rear case, which is on track and expected to be completed by the end of 2023, to fully meet the demand from Rolls-Royce and capitalise on the increasing air travel demand,” UOBKH Research said.SDB is expected to be earnings accretive by 14% in 2024, pursuant to UMW’s acquisition based on consensus estimation, it said.
It also highlighted that post-acquisition, the group’s debt is expected to increase to RM11bil from RM5.8bil, translating into a net gearing ratio rise from 0.31 times to 0.63 times, presuming a 100% acquisition of UMW’s shares.
“SDB is trading at an attractive valuation based on consensus forward financial year 2024’s price-to-earnings ratio of 13.3 times, notwithstanding the synergistic benefits which could be earnings-accretive to the group,” it said.
