CGS turns bullish on Sime Darby amid data centre demand, delayed vehicle tax changes

KUALA LUMPUR (Jan 26): CGS International has turned positive on Sime Darby Bhd, seeing tailwinds supporting the group’s industrial and motor segments.

Sustained demand for mining equipment in Australia is expected to boost the industrial segment’s earnings, while a delay on a tax revision on locally assembled vehicles will likely spur the motor segment, CGS said in a note on Monday.

The industrial segment is also expected to benefit from data centre investments in Malaysia, it added. A Caterpillar parts price hike in July last year is also expected to improve margins.

However, the stronger ringgit versus Australian dollar may offset operational improvements, it noted.

“We raise our rating as we expect the improving industrial division, deferment of open market value (OMV) excise tax revisions, and Perodua’s resilient market share to support contributions to Sime Darby,” the research house said in upgrading its call on the stock to ‘add’ from ‘hold’.

CGS said the latest deferment of the OMV tax revision to July 2026 may spur another round of demand for cars in the first half of 2026 (1H2026) and benefit Sime Darby, given the group’s stable of Toyota, Perodua and BMW are mainly assembled locally.

It raised earnings-per-share forecasts on Sime Darby for the coming three financial years ending June 30 by 0.2% to 2.7% as it factors in a higher motor market share, stronger-than-expected 2025 total industrial volume, lower Malaysia motor segment margin due to heightened competition and improving industrial segment margins.

“Valuations are compelling at 10 times CY2026F price-to-earnings, with attractive 7% forecasted dividend yields in FY2026 and FY2027,” it added. The research house lifted its target price to RM2.38 from RM2.00. 

According to AskEdge, MBM Resources Bhd and Bermaz Auto Bhd offer dividend yields above Sime Darby's trailing 12-month yield of 6.5% and are far higher than DRB-Hicom Bhd’s 2.2%.

Following CGS’ upgrade, the stock has nine 'buy', seven 'hold' and two 'sell' calls, according to Bloomberg data. 

At the time of writing, shares in Sime Darby were down two sen or 0.92% at RM2.15, valuing the group at RM14.59 billion.

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