KUALA LUMPUR (Jan 26): CGS International has upgraded its outlook on Sime Darby Bhd, citing improving prospects across the group’s industrial and automotive businesses.
The research house highlighted continued strong demand for mining equipment in Australia, which is expected to lift earnings from Sime Darby’s industrial division. At the same time, the postponement of revisions to the open market value (OMV) excise tax on locally assembled vehicles is likely to provide a near-term boost to the group’s motor segment.
In addition, CGS noted that rising data centre investments in Malaysia are creating further upside for the industrial segment. Margin expansion is also anticipated following a price increase on Caterpillar spare parts implemented in July last year.
That said, CGS cautioned that a stronger ringgit against the Australian dollar could partially offset operational gains in the industrial business.
“We are upgrading our recommendation as we expect improved performance from the industrial division, the deferment of OMV excise tax revisions, and Perodua’s stable market position to continue supporting Sime Darby’s earnings,” CGS said, raising its rating on the stock to ‘add’ from ‘hold’.
The research firm pointed out that the latest postponement of the OMV tax revision to July 2026 could trigger another wave of vehicle purchases in the first half of 2026. This is expected to benefit Sime Darby, as key brands under its portfolio — including Toyota, Perodua and BMW — are largely assembled locally.
CGS also revised its earnings-per-share projections for Sime Darby upward by between 0.2% and 2.7% for the next three financial years ending June 30. The adjustments reflect higher expected market share in the automotive segment, stronger-than-anticipated industrial volumes in 2025, softer margins in the domestic motor business due to competition, and improving profitability in the industrial segment.
“Valuations remain attractive at around 10 times forecast CY2026 earnings, supported by projected dividend yields of approximately 7% for FY2026 and FY2027,” CGS added, raising its target price on the stock to RM2.38 from RM2.00.
Market data from AskEdge showed that MBM Resources Bhd and Bermaz Auto Bhd offer higher dividend yields than Sime Darby’s trailing 12-month yield of 6.5%, and significantly exceed DRB-Hicom Bhd’s yield of 2.2%.
Following the upgrade, Bloomberg data indicates that Sime Darby is now covered by nine ‘buy’ calls, seven ‘hold’ ratings and two ‘sell’ recommendations.
At the time of reporting, Sime Darby shares were trading two sen lower, or down 0.92%, at RM2.15, giving the group a market capitalisation of RM14.59 billion.
From a broader investment standpoint, strengthening industrial activity and infrastructure-driven growth — including data centres and logistics — continue to support demand for industrial land in Selangor, factory developments in Puchong, and industrial property in the Subang area. These trends also underpin long-term confidence in commercial property in KL and emerging office space in Bukit Jalil, reinforcing Malaysia’s position as a key regional business hub.
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