Sime Darby is now facing a new challenge following the announcement by the Ministry of Investment, Trade and Industry (MITI) of a strict policy for completely imported (CBU) electric vehicles (EVs). Starting July 1, all CBU EVs must have a minimum cost, insurance and freight (CIF) value of RM200,000 and a motor power of at least 180kW.
Highlights
RHB Recommendation: Buy (Hold)
Target Price (TP): RM2.55
Dividend Rate: 6%
Key Issues: MITI's new regulations for imported electric vehicles (EVs) (CBU)
Sentiment: Positive on the industrial segment, but cautious on the automotive segment
Key Dates
July 1, 2026: Implementation date of new MITI regulations for CBU EVs
2030: Malaysia's target to achieve 20% EV sales of total new car sales
The move is seen to have a negative impact on Sime Darby's motoring division, especially the BYD brand which is a major contributor. Most BYD models are currently below the set price and motor power levels, thus sparking concerns about a decline in sales volume and a deterioration in profit margins. The broker estimates that if BYD sales are affected, it could reduce the company's annual revenue by up to 6%.
However, investors need not worry too much because Sime Darby has a "shield" that is its industrial segment. This segment remains the company's main revenue driver, aided by stable demand for heavy equipment and the potential for economic recovery from China. In fact, Sime Darby's current stock valuation is considered very attractive as it is trading at a price level lower than its historical average.
Key Focus
A key thing to watch is how Sime Darby adjusts its BYD sales strategy after July 1. Investors will need to see whether the company will accelerate its local assembly (CKD) efforts to remain competitive. In addition, the performance of the Chinese market and the increasingly tight margin stability in the automotive sector are also critical factors that could drive the share price in the near term.
Opportunities
Strong Industrial Segment: Robust demand for heavy equipment supports earnings streams.
Attractive Dividend Yield: A dividend yield of around 6% provides stable returns for long-term investors.
China Recovery: The potential for increased economic activity in China could have a positive impact on regional operations.
Risks
EV Policy Disruption: The minimum CIF regulation of RM200k could dampen sales momentum for affordable models.
Price Competition: The increasingly crowded EV market may force companies to reduce profit margins.
Global Economic Uncertainty: The risk of an economic slowdown could weigh on consumer spending on luxury goods.
Overall, Sime Darby remains a strong investment choice with a ‘Buy’ recommendation due to its diversified business. While MITI’s new EV policy puts short-term pressure on the automotive division, strength in the industrial segment and high dividend yields are key supporting factors. The key catalysts going forward will be the progress of policy negotiations with the government and the introduction of new EV models that meet MITI’s criteria.
