Nomura: Sime Darby 9M26 Earnings Beat Expectations, Maintains Buy Rating

Overview

Nomura published an earnings review on Sime Darby, highlighting robust core profit performance in the first nine months of FY26 (9M26), which exceeded analyst expectations. Despite a sequential revenue decline in Q3 due to lower sales in the Motors and UMW segments, overall profitability remained solid, supported by improvements in Singapore and China markets and a one-time gain from land disposal. The firm maintains its 'Buy' rating, believing the current share price is undervalued and that multiple potential catalysts exist in Q4.

Core views

Performance and Drivers: Sime Darby recorded 9M26 revenue of MYR 53 billion (+1% YoY) and core net profit (PATAMI) of MYR 1.029 billion (+25% YoY), achieving 78% of Nomura's full-year forecast and 74% of Bloomberg consensus. Q3 core profit stood at MYR 263 million, down 39% sequentially but up 56% YoY. Profit growth was primarily driven by strong performances in the Motors and UMW segments, as well as a one-time MYR 434 million gain from the sale of Malaysia Vision Valley land. Segment Insights: In the Motors segment, although quarterly revenue declined due to sequential drops in sales volumes in China and Malaysia, new vehicle sales in Singapore surged 22% YoY, with BYD and BMW together capturing 31% market share. Notably, the China operations posted a small loss in Q3 due to non-receipt of OEM subsidies, but full incentives are expected in Q4. In the Industrials segment, the Malaysian order book jumped 41% sequentially to MYR 1.7 billion, mainly driven by power system demand from data center projects, with strong revenue recognition anticipated in Q4. The UMW segment saw seasonal declines in Perodua and Toyota vehicle sales, but its forklift business is adapting to competitive pressure from Chinese OEMs by shifting toward leasing and used equipment. Valuation and Outlook: Nomura forecasts a modest 3% YoY decline in FY26 core profit, mainly due to macro headwinds and intensified competition in the automotive sector. However, the firm sees potential upside from signs of recovery in China, policy support, and improved industrial segment efficiency. The stock currently trades at just 10.5x FY26 P/E, below its historical average of 11.5x, with a P/B of only 0.7x and an attractive FY27 dividend yield of 5.7%, offering significant downside protection and appeal.

Analysis framework

Nomura employs a Sum-of-the-Parts (SOTP) valuation methodology for Sime Darby—a common approach for diversified conglomerates. The firm assigns different P/E multiples to each business segment (Motors, Industrials, UMW) and independently values land assets using Net Asset Value (RNAV) or recent transaction averages, then sums these components to derive the target price. This method more accurately reflects the value contribution of businesses operating in different cycles and avoids distortion from single-metric valuations. Additionally, the report dissects regional sales volumes, market share shifts, and one-off gains/losses to pinpoint specific sources of profit volatility.

Methodology notes

• Valuation MethodSOTP Valuation

  SOTP (Sum-of-the-Parts) Valuation

  Treats each business segment (e.g., automotive, industrials, property) as a standalone entity, applies appropriate valuation multiples (e.g., P/E or RNAV) to each, and sums the results—ideal for diversified conglomerates.

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Volume-Price Decomposition Analysis

  Breaks down revenue changes into volume (units sold) and price/mix (average selling price or product mix) components—for example, analyzing the Motors segment by separating vehicle sales volume from market share or brand mix effects.

• Event Arbitrage & Behavioral FinanceExpectation Gap / Expectation Management

  Expectation Gap Analysis

  Focuses on the difference between actual results and market consensus or analyst forecasts (Beat/Miss), and identifies unpriced potential positives (e.g., delayed dividends) as upside risks.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Sime Darby (SIME.MK)

  Beneficiary: Core profit beat expectations, trading at low valuation, with dual catalysts from data centers and automotive recovery

  Strengths

  Diversified business structure mitigates risk; strong industrial order book; growing automotive market share in Singapore and China; high dividend yield

  Weaknesses

  Short-term losses in China automotive operations; UMW forklift business faces intense competition from Chinese OEMs; seasonal fluctuations in Malaysian auto sales

  Comparison

  Compared to pure-play auto dealers, its industrial segment offers stronger cyclical resilience; compared to pure industrial stocks, its automotive segment provides consumer recovery optionality

  Risks

  Weak consumer confidence; falling commodity prices impacting mining investment; MYR depreciation; slowdown in China’s construction sector

Key data

• 9M26 Core Net Profit (PATAMI)MYR 1.029 BillionUp 25% YoY, representing 78% of Nomura's full-year forecast
• 3Q26 Core Net ProfitMYR 263 MillionDown 39% QoQ but up 56% YoY
• Industrials Segment Malaysian Order BookMYR 1.7 BillionUp 41% QoQ, primarily driven by data center projects
• Target PriceMYR 2.75Based on SOTP valuation, implying 13.8x FY27 P/E
• Current Valuation10.5x FY26 P/E / 0.7x P/BBelow historical average forward P/E of 11.5x

Impact & implications

The report argues that despite macroeconomic headwinds and geopolitical tensions, Sime Darby’s fundamentals remain solid. Market share gains in China’s automotive segment and a growing backlog of data center-related orders in the industrial segment provide long-term growth momentum. Q4 dividend inflows and potential government policy support could serve as catalysts for share price appreciation. The current low valuation and high dividend yield offer investors both defensive qualities and upside potential.

Risks

• Weak consumer confidence and slowing GDP growth suppressing big-ticket spending and global trade
• Commodity price collapse affecting mining capital expenditure
• MYR exchange rate weaker than expected
• China’s property sector debt issues leading to a construction slowdown

What to watch

• Actual amount of BMW Malaysia dividends received in Q4
• Signs of recovery in China’s auto market and implementation of supportive policies
• Revenue recognition progress on Malaysian data center projects
• New contract wins in the industrial segment