Friday 9 March 2012

Sime Darby - Premium car sales in China to moderate but still decent growth


We reaffirm our BUY rating on Sime Darby but with our fair value of RM10.60/share is currently placed under review but with an upward bias pending a meeting with the management.

It was reported that Audi’s February car sales in China and Hong Kong was up 66% YoY or 31,252 units sold, signalling demand for luxury vehicles in China has been largely unscathed by the weak economy outlook. This is also the first time that Audi sales in China had reached 30,000 units in a single month. 

Similarly, BMW’s February sales echoed Audi’s strong performance with 40% YoY growth to 22,916 units. But BMW expects its vehicle sales in China to show moderate growth in 2012, although still in the region of 20% YoY, unlike prior years’ growth of 40%-50%.

China Association of Automobile Manufacturers (CAAM) – the equivalent to Malaysia’s AAM - is looking at 10% YoY growth to 20mil units in auto sales this year. 

To recap, Audi has a market share of close to 30% - from 40%-50% in the previous years - in the luxury sedan segment with BMW fast catching up with about 25% market share, followed by Mercedes at 22%.  The premium car segment accounts for about 5% of the China’s yearly sales or 800k to 900k units a year and is expected to grow by 20% to 30% every year.

This bodes well for Sime given its exposure - being one of the dealers - to the premium segment in the biggest auto market in the world. Sime sells about 20,000 BMW units annually with 10 dealerships in major cities including Shenzen, Guangzhou, Shantou, Haikou, Kunming, Chengdu and Changsha. There are plans afoot to gradually increase its presence towards the northern cities. 

We forecast motors division to contribute about 13% and 15% to Sime’s operating profit for FY12F and FY13F respectively, to be mostly driven by China sales but Malaysia and Singapore markets will show the strongest growth underpinned by the launch of new 3-series model in 2Q2012. 

We continue to like Sime as the company is the most liquid proxy to the plantation sector, which accounts for 61% of its FY11’s EBIT. Valuations are also attractive, currently trading at CY12F PE of 16x which is below its 3-year average of 17x and below its peers of 18x.  

Source: AmeSecurities

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