SIME will be buoyed by strong sales and margins from Perodua vehicles, driven the high-margin all-new Perodua D66b and a new Perodua EV model. Similarly, BMW Malaysia will do well on higher sales and margins. We raise our FY24-25 net profit forecasts by 4% each, similarly lift our TP by 4% to RM2.90 (from RM2.80) and upgrade our call to OUTPERFORM from MARKET PERFORM.

Key takeaways from our recent engagement with the company are as follows:

1. SIME echoed Perodua’s guidance for 2024 vehicle sales of 330k units (matching that of 2023) and vehicle production of 334k units. It believes the 2024 sales target could even be exceeded based on strong demand for affordably-priced vehicles. SIME also hinted a more exciting year in 2025 buoyed by the all-new Perodua D66b in early-2025, and Perodua EV model by end-2025. Locally-produced Perodua EV model is expected to be priced within the range of RM50k-RM100k and it hopes to sell 10k unit during the initial period of National EV project by Perodua.

2. Both SIME and Perusahaan Otomobil Kedua Sdn Bhd are committed to a gradual transition towards electric vehicles for the Malaysian market. SIME shared that their BMW IX EV & hybrid models, Toyota Corolla Cross hybrid, BYD Atto 3 EV and BYD Seal EV has received overwhelming response from the market. SIME plans to introduce BMW i5 limited edition & 520i (this week), BYD BAO 5 (CY2025), Toyota BZ4X EV (CY2025), and Perodua EV (end-2025).

3. SIME expects higher profit contribution from BMW Malaysia in line with its strong Malaysian market 9MFY24 sales (higher by 71% to 28,306 units) with expected improvement in margin from price hike in January 2024 i.e. up to RM29k more with 5-year warranty; 3 Series up RM10k, iX up RM15k (up to 3% for certain models).

Forecasts. We raise our FY24-25F net profit forecasts by 4% each to account for strong sales and margins from Perodua vehicles driven the high-margin all-new Perodua D66b and a new Perodua EV model and stronger performance from BMW Malaysia on higher sales and margins.

Valuations. We also raise our SoP-derived TP by 4% to RM2.90 (from RM2.80, see Page 8). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 10).

Investment case. We like SIME for: (i) the robust growth in its businesses post economies reopening, (ii) the strong brands under its stable such as BMW, Caterpillar, Toyota and Perodua, and (iii) its attractive dividend yield of >4%. Upgrade to OUTPERFORM from MARKET PERFORM as value has emerged after the recent correction in its share price.

Risks to our call include: (i) governments cutting back on infrastructure spending on austerity drive and/or a slowdown in the mining sector, hurting demand for heavy equipment, (ii) consumers cutting back on discretionary spending (particularly big-ticket items like new cars) amidst high inflation, and (iii) persistent disruptions (including chip shortages) in the global automotive supply chain.

Source: Kenanga Research - 14 Jun 2024