Kenanga Bullish as Sime Aims for 11% ROE with New Launches

Kenanga Research has released a bullish report on Sime Darby Bhd, which controls about 60% of the local automotive distribution market through its Sime Motors division.

This optimism stems from Sime’s plan to achieve an 11% return on equity (ROE) by 2030. The company is currently valued at 11 times its forward price-earnings ratio, lower than its five-year average of 13 times.

Kenanga had previously projected a 6% ROE for the 2025 and 2026 financial years. However, the new targe target — announced at Sime’s Corporate Investors Day — relies on its diverse brand portfolio, cost-cutting strategies, and partnerships with Onsite Rental Group, Cavpower Group (a Caterpillar distributor), and UMW Holdings Bhd.

Sime expanded its automotive lineup to include Toyota and Perodua after acquiring UMW in 2023. This diversification complements its premium offerings like BMW. UMW was delisted in February following its privatisation by Sime.

With a broader product range, Sime is better equipped to navigate the anticipated subsidy cuts for RON95 petrol in June.

Kenanga also highlighted several key launches this year, including the new Perodua Myvi, the hybrid Perodua D66B, its sister model Toyota Yaris Cross, and the highly anticipated Perodua electric vehicle (EV), the eMO-II Concept.

The report is optimistic about Sime’s China operations, especially with BMW’s Neue Klasse EV production — tailored for the Chinese market — starting next year. Sime also plans to close underperforming dealerships and lower BMW’s volume targets to control costs.

Additionally, China’s car price war is easing, with fewer discounts, which could further benefit Sime.

Kenanga noted Sime’s positive outlook in the Australian mining sector. Despite reduced Chinese demand due to tariffs, Australia has diversified its coal exports to markets like India, Japan, South Korea, and Taiwan.

This shift has supported Sime’s Caterpillar heavy equipment sales, boosting industrial segment revenue to RM20.4 billion in FY24. After-sales services also helped push the segment’s profits to RM1.4 billion.

Kenanga praised Sime’s leadership in the Malaysian automotive industry, its exposure to the Australian mining sector, and its portfolio of blue-chip brands like BMW, Caterpillar, Toyota, and Perodua.

Sime also offers an attractive 6% dividend yield. Kenanga has maintained its “outperform” rating on the stock, with a target price of RM2.90 per share.