Date: September 25, 2024
Broker: CGS-CIMB Securities Malaysia

Company Overview

Sime Darby Bhd is a diversified Malaysia-based conglomerate involved in various sectors, including industrial, motors, and healthcare. The company is strategically positioned to capitalize on domestic market opportunities while benefiting from international ventures.

Financial Performance and Outlook

CGS-CIMB has maintained an “Add” recommendation for Sime Darby Bhd with an increased target price of RM3.60. The company is expected to see significant growth in its profit before interest and tax (PBIT), driven primarily by contributions from Malaysia-based operations.

Key Drivers for Growth

• Malaysia-Based Contributions: The contribution of Malaysia-based operations to Sime Darby’s PBIT is projected to increase from 24% in FY23 to 60% by FY25F. This substantial rise is attributed to currency benefits and the full impact of the UMW acquisition.

• Currency Benefits: While there are some translation impacts from overseas profits due to the strengthening of the Malaysian Ringgit (RM), the company is expected to benefit from currency gains, particularly in its domestic operations.

• UMW Impact: The acquisition of UMW is expected to further boost earnings, particularly in the automotive sector, helping Sime Darby consolidate its position in the domestic market.

Valuation and Recommendation

Despite the notable benefits from currency gains and the UMW acquisition, Sime Darby Bhd is currently trading at an attractive valuation of just 9.5 times its FY25F price-to-earnings ratio (P/E). The stock also offers a dividend yield of approximately 5%, making it a compelling investment opportunity.

CGS-CIMB reiterates the “Add” recommendation on the stock, supported by strong domestic tailwinds and a positive earnings outlook driven by strategic acquisitions and favorable currency movements.