Overview of Malaysia’s Automotive Industry

The Malaysian automotive industry is undergoing a significant transformation, driven by the rise of electric vehicles (EVs). While traditional automakers face increasing competition from Chinese EV manufacturers, the market presents opportunities for local players to capitalize on the shift. This comprehensive analysis explores the EV transition in Malaysia, evaluates the performance of key companies, and provides investment recommendations.

Sime Darby: A Market Leader Positioned for Success

Sime Darby is a standout player in Malaysia’s automotive landscape, with a robust presence across all market segments. Following its acquisition of UMW, Sime Darby has solidified its dominance by controlling key brands such as Perodua and Toyota, which together command approximately 56% of the local Total Industry Volume (TIV).

In the EV space, Sime Darby leads with its exclusive distributorship of BYD in Malaysia. Despite the challenging economic outlook in China impacting its motor and industrial segments, Sime Darby is well-insulated due to its diversified portfolio. Its strong presence across the automotive supply chain positions it to capitalize on mergers and acquisitions as market consolidation continues.

Investment Recommendation

Recommendation: Buy

Target Price: MYR2.64

Upside: 25%

Trading at a forward FY25E PER of 11x compared to its historical average of 13x, Sime Darby offers an attractive valuation. Its resilience and strategic positioning make it a top pick for investors.

Bermaz Auto: Strengthening Its Portfolio Amidst Challenges

Bermaz Auto (BAUTO) is another key player poised for growth. Despite recent headwinds, the company’s vehicle sales slowdown, particularly for Mazda and Kia, is expected to bottom out. The launch of the Kia Sportage in December 2024, Kia’s first volume model, signals a strong recovery trajectory.

Additionally, Bermaz Auto has expanded its portfolio by securing distributorships for Chinese EV brands such as XPeng and Deepal. This move enhances its competitiveness against other Chinese automakers entering the Malaysian market, with more models from these brands expected to launch in the medium term.

Investment Recommendation

Recommendation: Buy

Target Price: MYR2.42

Upside: 79%

With dividend yields exceeding 11% and improving sales prospects, Bermaz Auto remains an attractive investment opportunity.

MBM Resources: Leveraging Perodua’s Dominance

MBM Resources benefits significantly from its close ties with Perodua, Malaysia’s largest car manufacturer. As a dealer, auto parts supplier, and shareholder of Perodua, MBM Resources is well-positioned to capitalize on Perodua’s market dominance.

The company is also diversifying its portfolio by partnering with growing Chinese automakers such as Jaecoo. These efforts align with its medium-term growth strategy, though its recent steep share price increase limits further upside potential.

Investment Recommendation

Recommendation: Hold

Target Price: MYR6.25

While MBM Resources offers a strong dividend yield, the upside appears limited, making it a more conservative choice for investors.

Tan Chong Motor: Facing Headwinds Amidst Market Consolidation

Tan Chong Motor (TCM) is navigating challenging times, with weak product demand and rising competition from both local and international players. The company’s plant utilization remains low, and there is a significant risk of losing its Nissan distributorship due to ongoing struggles.

However, opportunities exist in the form of vehicle production for Nissan’s export market, which began in 4Q24. Additionally, if Honda and Mitsubishi expand their operations in Malaysia, TCM’s facilities could play a role in supporting increased production.

Investment Recommendation

Recommendation: Hold (Upgraded from Sell)

Target Price: MYR0.39

Despite its challenges, TCM’s downside appears capped following a decline in its share price. While opportunities exist, the risks associated with its Nissan distributorship weigh heavily on its outlook.

Risks and Challenges in the Malaysian Automotive Sector

The Malaysian automotive sector faces several risks that could impact company earnings and market dynamics:

• Unfavorable shifts in automotive policies could disrupt local vehicle sales.
• Supply chain disruptions and a downturn in consumer sentiment could adversely affect production and sales.
• Challenges in developing a robust EV supply chain, especially for local suppliers, remain a significant hurdle.

Conclusion

Malaysia’s automotive sector is at a pivotal moment, with the EV transition reshaping the landscape. Sime Darby and Bermaz Auto emerge as top picks, offering strong growth potential and resilience amidst market challenges. MBM Resources and Tan Chong Motor provide more conservative investment opportunities but face limitations in their growth outlooks. Investors should weigh these insights carefully as they navigate this evolving market.