The group has guided that the currency-related parts price reduction should recover in the upcoming quarters.
PETALING JAYA: Analysts remained positive on Sime Darby Bhd
’s prospects as the group’s first half of financial year 2025 (1H25) results were mostly within their expectations.
Kenanga Research in highlighting some key takeaways from Sime Darby’s recent results briefing said the group had reiterated its guidance for mid-single-digit margins for its industrial division.
“Sime Darby holds the view that commodity demand will remain strong leading to high equipment spending and after-sales service, buoyed by Australia’s diversified export of metallurgical coal with India, Japan and South Korea as its main customers,” it noted.
Sime Darby also has a healthy order book of RM4.7bil in 1H25, up 12% with the inclusion of a new contract to supply mining trucks worth RM798mil in Australia that it secured in October 2024.
The group has also guided that the currency-related parts price reduction should recover in the upcoming quarters.
“We keep our industrial margin assumption at 7% for both financial year 2024 (FY24) and FY25,” added Kenanga Research.
Sime Darby is also long-term bullish on the China market with the China-for-China strategy led by the new BMW Neue Klasse electric vehicle, which is set for production in 2026 as well as a cost optimisation strategy in place.
The discounts competition in China is gradually easing with the number of car price cuts having significantly decreased recently, noted Kenanga Research.
On UMW Holdings Bhd, the research house said Sime Darby considers UMW as its third core business as it offers diversification with its presence in the mid-market segment such as Toyota and the affordable segment like Perodua), from Sime Darby’s predominantly premium offerings such as BMW.
This puts it in a better position to navigate the impending RON95 subsidy rationalisation by June 2025.
Sime Darby is also looking to divest its Komatsu business soon, while remaining optimistic on the remaining business prospects under equipment business.
Kenanga Research, which has an “outperform” call on the stock with a target price of RM2.90, said: “We like Sime Darby for being the automotive leader in Malaysia with 60% market share while balancing out the cyclical demand in other regions.”
The group is also a proxy to the Australian mining sector for its rare high-quality met coal and other high-demand sustainable-related metals as well as having strong brands under its stable such as BMW, Caterpillar, Toyota and Perodua, it added.
Hong Leong Investment Bank (HLIB) Research in a report said: “We expect Sime Darby to leverage onto its strong Industrial segment in FY25, underpinned by its high RM4.8bil orderbook, as well as full consolidation of UMW.”
The brokerage firm has kept a “buy” call with an unchanged TP of RM2.65, based on a 20% discount to sum-of-parts of RM3.33.
“Sime Darby will continue to leverage the strong momentum of its industrial segment, driven by mining in Australia for FY25.
“We also expect a continued decent dividend yield of 5.7% for FY25-FY27,” HLIB Research noted.
Meanwhile, CGS International (CGSI) Research said the group’s 1H25 earnings came in at 40% of its FY25 forecasts.
“We deem results in line as we expect higher 2HFY25 contributions from industrial and UMW divisions,” it said, adding that the market continues to underestimate the likely strength of Sime Darby’s industrial business turnaround in 2H25.
HLIB Research has reiterated an “add” rating on the stock with an unchanged TP of RM3.60.
“This will be supported by higher contributions from the industrial segment, given sustained demand for commodities and increased projects in Malaysia and Singapore, higher contributions from the UMW division, and the bottoming of the China automotive business,” said the research house.
