Distributor of BYD in Malaysia, Sime Darby Galvanise Its Position As Leader in EV Offerings: RHB IB

RHB Research maintains “BUY” call on Sime Darby and set its target price (TP) at MYR2.75, which translates to 29% upside, and c.6% FY23F (Jun) yield.

That said, Sime Darby Motors will be BYD’s distributor in Malaysia, following an agreement signed between the companies yesterday. The research house is positive on the development, as it strengthens Sime Darby’s position as the leader in EV offerings in Malaysia. For now, it will distribute BYD’s Atto 3 and new e6 models, with the former potentially entering the Malaysian market as the most affordable EV.

Positive on the news, but not surprised. As Sime Darby is already BYD’s dealer in Singapore (via Vantage Automotive), and with BYD recently announcing that it would set up a facility in Thailand to start producing 150k passenger cars per annum from 2024 for domestic consumption, and export to South-East Asian and European countries, it was only a matter of time before Sime Darby brought BYD into Malaysia, in the research analysts’ view.

Bringing in the Atto 3 and new e6. The Atto 3 is an electric C-segment SUV and currently retails in Australia and Thailand for c.MYR137-147k. The new e6 is an electric compact MPV and is currently on sale in Singapore for SGD116k. The research house does not have any indication on the potential prices in Malaysia at the time of writing. If the Atto 3 sells in Malaysia for c.MYR137-147k, then it may soon be the country’s cheapest EV, dethroning the Hyundai Kona e-lite, which currently has a starting price of MYR157k. The Atto 3’s pricing may go head-to-head against Great Wall Motors’ Ora Good Cat EV, which is rumoured to retail between MYR130k to MYR180k.

Solid EV pipeline. With BYD added to its list of renowned brands in Malaysia, Sime Darby strengthens its position as the auto company with the most comprehensive EV offering in the country. The orders for its EVs remain robust despite long waiting periods.

Meanwhile the research house has stated in its research report that it would maintains its forecasts for now, until it gets greater clarity on the BYD volumes that Sime Darby will bring into Malaysia. However, as the BYD vehicles will likely be CBU for the foreseeable future (given BYD’s upcoming production in Thailand), it is believed that volumes in Malaysia will unlikely be meaningful, and therefore the earnings impact will not be material.

The BUY recommendation is based on several factors, i.e. growing fleet of EV offerings, positioning Sime Darby to capture the rising demand for EVs in coming years; 5.6% dividend yield; resilient Australasia industrial segment, supported by miners’ equipment servicing, which commands a higher margin than new equipment sales; and potential special dividends from its divestment of non-core assets.

Key risks include weaker-than-expected Australasia industrial margins, softer-than-expected car sales across its markets, and a longer-than-expected downturn in China.

Salient Points:

Target Price (Return): MYR2.75 (28.5%)
Price (Market Cap): MYR2.14 (USD3,161m)
ESG score: 3.00 (out of 4)
Avg Daily Turnover (MYR/USD) 15.9m/3.53m

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