Sime Auto’s takeover of UMW has expanded its presence in the local automotive market to the mid-market and affordable segments, from its previous predominantly premium offerings. Kenanga says this puts it in a better position to navigate the impending fuel subsidy rationalisation.
Upon the conclusion of SIME’s takeover of UMW in Feb 2024, SIME’s presence in the local automotive market will be expanded to the mid-market (i.e. Toyota) and affordable (i.e. Perodua) segments, from predominantly premium offerings (i.e. BMW). This puts it in a better position to navigate the impending fuel subsidy rationalisation. Moreover, SIME will likely benefit from the anticipated new launches of Perodua D66B and Toyota Yaris Cross by April 2024.
Post acquisition, by virtue of having well known marques namely Toyota and Perodua under UMW, SIME’s market share in the local automotive total industry volume (TIV) will surge from 3% to >50%. UMW provides access to the massive Toyota ecosystem, a strong high value supply chain and will enhance SIME’s local market exposure. Geographically, the auto group will have equal exposure to Malaysia, China and Australia with remaining 10% in other markets vs. being predominantly in China previously.
UMW will be delisted in Feb 2024 (offer period ended on 31st January 2024, and UMW will be suspended from trading starting today, 9 February 2024). Recall, the all-cash deal (RM5.8b) to acquire UMW is financed by Sukuk Murabahah (RM3b) and sales proceeds from the disposal of its healthcare business which was completed in Dec 2023 (RM2.8b). Post-business integration, SIME’s net debt and net gearing will increase from RM3,995m to RM5,877 and 0.2x to 0.4x, respectively (which includes UMW’s net cash position at RM1,118m). Subsequently, SIME plans to pare down its debt through the disposal of Malaysia Vision Valley land in Labu, Negeri Sembilan (RM2,959m), and the disposal of Komatsu and UMW’s Serendah land.
Kenanga is raising its FY24-25F net profit forecasts by 2% and 14%, respectively, on earnings enhancement from UMW’s acquisition. Correspondingly, the house upgrades its SoP-derived TP by 14% to RM2.80 (from RM2.45). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us.
The house likes SIME for the robust growth in its businesses, post the economy reopening, the strong brands under its stable such as BMW, Caterpillar, Toyota and Perodua, its attractive dividend yield of >5%.
