Sime Darby Bhd’s earnings recovery in financial year 2027 is expected to be driven by improving demand in its industrial division and a turnaround in its China automotive business, according to RHB Investment Bank, which maintained its “Buy” recommendation while raising its target price to RM2.40 from RM2.27.
The new target price implies a 10% upside, with the research house continuing to favour the stock for its attractive valuation and dividend yield. Sime Darby is currently trading at about one standard deviation below its historical average valuation and is expected to offer a dividend yield of approximately 7% for FY2027.
RHB expects the diversified group to post core profit after tax and minority interests (PATAMI) of between RM300 million and RM330 million for the fourth quarter of FY2026 when it announces its full-year results on Aug 27.
The anticipated performance would represent a 15% to 25% quarter-on-quarter improvement, supported by seasonally stronger vehicle sales and potential rebates from its China operations. On a year-on-year basis, earnings are expected to range between a 9% decline and a marginal 1% increase.
The research house also expects stronger sales of BYD electric vehicles, driven by purchases brought forward ahead of Malaysia’s new electric vehicle policy, which came into effect on July 1.
RHB highlighted the potential for additional earnings upside from Sime Darby’s BMW business, which did not contribute dividends in FY2025 after paying RM142 million in FY2024.
Based on a projected 90% payout ratio, the research house estimates BMW could contribute RM100 million to RM120 million in dividends this year, potentially lifting Sime Darby’s FY2026 earnings by 5% to 7%. Assuming a group payout ratio of 65%, investors could also enjoy a dividend yield of around 7%.
The automotive segment continues to benefit from healthy industry demand. Perodua recorded a 13% quarter-on-quarter increase in sales to 84,062 units in the second quarter of 2026, bringing first-half sales to 158,295 units, or 49% of RHB’s initial full-year forecast.
Toyota and BYD also delivered robust growth, with sales increasing to about 21,000 units and 4,000 units, respectively, during the quarter.
Reflecting stronger-than-expected industry performance, RHB has revised its total industry volume (TIV) forecast upward to 805,000 units from 780,000 units, leading to higher vehicle sales assumptions for Sime Darby.
Despite the improving outlook for the automotive business, RHB said the industrial division remains the group’s key earnings driver.
Management expects another relatively flat quarter for the segment as mining customers in Australia remain cautious due to elevated financing and fuel costs despite firm commodity prices. However, after-sales activities, which generate higher margins, have shown gradual improvement since July, while average selling prices remained stable, helping preserve profitability.
The industrial segment accounted for 42% of Sime Darby’s earnings before interest and tax (EBIT) during the first nine months of FY2026.
RHB raised its FY2027 and FY2028 earnings forecasts by 4% each after incorporating higher Perodua sales volumes and improved margins.
The research house maintained its sum-of-parts valuation methodology for Sime Darby and said key downside risks include weaker-than-expected margins and a more prolonged downturn in the group’s China automotive operations.
