Sime Darby stays bullish on China auto market
PETALING JAYA: Despite the turmoil in international trade, Sime Darby Bhd remains bullish on China where it is a sizeable dealer of luxury cars from BMW.
The group recently posted disappointing results, with particular weakness observed in its China operations.
To mitigate ongoing pressures, Sime Darby is actively implementing cost-saving measures, including the closure of underperforming outlets and a more targeted brand focus, Kenanga Research said in a report following a recent visit to Shanghai to conduct on-the-ground surveys to gain direct insight into the state of the automobile market there.
'From Sime Darby's perspective, they are long-term bullish on the China market with the China-for-China strategy led by the new BMW Neue Klasse electric vehicle (EV) that is set for production next year with special designs and functions for China, as well as cost optimisation strategy in place which includes closure of non-performing dealerships, special rebates and a lower volume target from principal BMW,' the research house said.
Kenanga Research said, overall, based on the small sample of one BMW dealership it visited, which was bustling, and from conversations with Shanghai drivers, it appears that market challenges remain.
'The BYD price discounts that we read about in the news are more pertinent to that brand. BMW, which is positioned as a maker of internal combustion engine cars, is being pitted against a sea of EV choices, where support for EVs from the Chinese government remains strong.'
The research house said based on its conversations, year-to-date discounts remain steep, suggesting that the auto market in China is not out of the woods yet.
This supports its continued contrarian 'sell' call on Sime Darby at the moment.
Kenanga Research has a RM1.65 target price on the stock, one sen higher than the RM1.64 it was trading at the time of writing. It noted the re-emergence of new rounds of deep discounts, with BYD recently slashing its prices by 35% and other makers expected to follow suit.
According to the research house, Sime Darby guided that the heavy discounts and weak domestic demand could weigh on the automotive market in China.
However, it plans to launch several new models across Malaysia, Australia and China to support sales and refresh its product lineup. Currently, Sime Darby's China automotive business contributes around 22% of total group revenue, with a net loss of RM10mil for the first half of its financial year 2025 (FY25).
This came as the group fell into losses for its recent second quarter of FY25 despite staging a recovery in the first quarter.
'We believe that the price-discount pressure, whether in China or Malaysia , have become more intense with the influx of China-made cars due to aggressive pricing or discounts that render other brands' pricing unattractive.
'Locally, we believe the RM100,000 floor price of imported EVs has been a blessing in disguise for the national marques, especially Perodua, which looks to be insulated from the competition so far.
'The expected ending of incentives for imported completely-built-up EVs into Malaysia by the end of this year may alleviate some of the intense competition in the non-nationals space.'
However, Chinese brands like Chery are planning to stay, with a RM2.2bil investment in a Smart Auto Industrial Park in Hulu Selangor, which could pose long-term competition in the non-nationals space.
To stay competitive, more local partnerships with Chinese car brands may emerge in the coming years.
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