THE anticipated acquisition of UMW Holdings Bhd for RM5.8 bil is poised to significantly enhance Sime Darby Bhd’s market presence in Malaysia while diversifying its product portfolio, according to analysts at CIMB Securities.
The acquisition is seen as particularly advantageous in strengthening Sime Darby’s foothold in the entry-level and mid-market automotive segments, which are currently dominated by Perodua and Toyota.
“With the inclusion of UMW Toyota and Perodua, we project Sime Darby’s share of new vehicle sales in Malaysia to surge from 4.0% in calendar year 2023 (CY23) to 60% in CY24,” it said in a note.
Moreover, Sime Darby’s association with Perodua provides exposure to Malaysia’s national electric vehicle (EV) initiative, with Perodua aiming to introduce its first EV model by 2025.
Despite the Malaysian Automotive Association’s projection of a 7.5% contraction in new vehicle sales in 2024, CIMB Securities is of the opinion that there is potential for an upward revision to this forecast due to favourable government policies.
“Overall, we estimate the revenue contribution from the Malaysian market will rise from 16 per cent in the financial year 2023 (FY23) to 24% and 32% in FY24 and FY25 respectively.
“This will create a more balanced portfolio and partially offset the earnings volatility from China and Australian markets,” it added.
Furthermore, CIMB Securities anticipates sustained demand for Sime Darby’s industrial equipment, fueled by new asset acquisitions in Australia and higher Australian coking coal exports, amid a slowdown in China’s property market.
However, the firm expects a weaker contribution from the China motors division in CY24 due to increased competition in the EV segment.
“Overall, we project 25%/12%/2% year-on-year (yoy) earning per share (EPS) growth in FY24/25/26 driven by earnings contribution from UMW and higher equipment sales and rental on the back of resilient mining demand in Australia.
“We resume coverage on Sime Darby with a Buy rating and RM3.30 target price in view of a robust earnings growth outlook,” it further added. – May 22, 2024
