Sime Darby to be key beneficiary of rising electric vehicle adoption

PETALING JAYA: Sime Darby Bhd is expected to be a key beneficiary of higher electric vehicle (EV) or hybrid car adoption.

The conglomerate has a comprehensive line-up of EVs hybrids across a spectrum of brands, ranging from premium segment with BMW and Porsche, mid-level with BYD and Toyota.

The mass-market segment is expected to be covered by the Perodua EV that is expected to be launched in 2025 (Proton's own EV is set to be introduced earlier in December this year).

CGS International Research (CGSI Research) said while the recent start of the fuel subsidy rationalisation could be a potential headwind to total vehicles sales, the government’s reform initiatives could accelerate the adoption of EVs.

“We also think the impact of fuel subsidy rationalisation on mass-market brands such as Perodua will be relatively subdued as the majority of its target customer base will likely still be eligible for the subsidy,” the research house said.

Vehicles sales had risen 8.3% year-on-year (y-o-y) to 328,901 units during the first five months of 2024.

CGSI Research projected the total volume in Malaysia to reach 780,000 units for 2024, down from 800,000 in 2023.

The research house expects volume for 2025 to 2026 at 15% above the pre-Covid (2007-2019) average of 650,000 to 700,000 units a year.

“Our total-volume estimates are premised on a robust Malaysian consumer spending environment, and rising salaries for civil servants and fresh graduates, which will help support new-car sales in Malaysia,” CGSI Research said.

“The Chinese auto market continues to remain challenging, and we think price competition is unlikely to alleviate in the near to medium-term,” it added.

CGSI Research reiterated its “add” rating on Sime Daby with a higher target price of RM3.22.

Sime Daby’s industrial segment will continue to expand, driven by robust infrastructure and data centre projects in Malaysia, according to the research house.

“We believe upcoming mega infrastructure and data centre projects will support industrial orders and partially offset lower demand from Australia’s mining industry,” it said.

Sime Darby’s industrial order book stood at RM4.25bil as of March 24, down 10% y-o-y.

“This was largely attributable to lower orders from the Australian mining segment, but we think longer-term demand for mining equipment will be supported by global transition to green energy,” it said.

CGSI Research projected Sime Darby’s industrial revenue to post healthy 17.5% y-o-y growth in the financial year ending June 30, 2024 (FY24) before tempering in FY25-FY26.

It also projected that the division’s profit before interest and tax margins to expand in FY24 to 7% before declining to the 6.5% to 6.6% levels in FY25 and FY26.

Sime Darby’s net profit rose to RM340mil in the third quarter (3Q) ended March 31, 2024, from RM240mil in 3Q23, translating to a higher earnings per share of five sen, compared with 3.5 sen previously.

The group reported revenue of RM18.84bil in 3Q24 against RM11.53bil in 3Q23.
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