Here, we focus on identifying stocks that have experienced (and perhaps will soon) a 10% price pullback from recent highs, presenting potential buying opportunities. This 10% pullback strategy is based purely on technical analysis, especially price action, without delving into the underlying fundamentals of the companies. We aim to uncover stocks that are showing signs of recovery or consolidation, offering traders a chance to enter at a potentially discounted price. Please refer How to Choose Stocks for the 10% Pullback Strategy to choose stocks that are safer for using the 10% pullback strategy, ensuring that you’re buying into companies with solid fundamentals and long-term growth prospects.
Weekly Analysis
*Updated: 15 Mar, 2025
Buy Stock During Market Correction
| SIME 4197 | Stock Price | Remarks |
|---|---|---|
| Recent High | 2.97 | 24 May, 2024 |
| 10% | 2.67 | 1/3 of capital, set TP: 2.82 |
| 20% | 2.37 | 1/3 of capital, set TP: 2.67 |
| 30% | 2.07 | 1/3 of capital, set TP: 2.37 |
| 40% | 1.78 | set TP: 2.07 |
| Target Price | 2.82 | sell remaining stocks |
| Support 1 | 2.20 | |
| Support 2 | 1.65 | strong |
Why Buy SIME Stock
Investing in Sime Darby Berhad (SIME Darby) for the long term can be appealing for several reasons, given its diversified business portfolio, solid market position, and growth potential. Below are some key aspects that may support a long-term investment thesis for Sime Darby:
1. Diversified Business Portfolio
Sime Darby operates in several sectors, which helps mitigate risk and provides multiple streams of revenue. Its main business segments include:
- Plantation: One of the largest palm oil producers in Malaysia and globally. Palm oil has steady demand in food, biofuel, and other industrial applications.
- Industrial: Involved in the distribution of heavy equipment, including brands like Caterpillar. This segment benefits from infrastructure and mining growth in emerging markets.
- Motors: The company has a strong presence in the automotive sector, selling premium brands like BMW, Porsche, and Ford across various countries. This segment could be lucrative as consumer demand for vehicles increases in emerging markets.
- Property: Through its real estate investments, the company generates revenue from commercial and residential developments, especially in Malaysia and other Asian markets. This diversified approach provides stability and reduces the company’s exposure to any single market risk, giving it more flexibility in adjusting to market changes.
2. Strong Market Position
Sime Darby has a long track record in Malaysia and Southeast Asia, making it one of the leading conglomerates in the region. This market leadership can provide economies of scale, competitive advantages, and increased pricing power in its various segments. For instance:
- In the palm oil industry, it benefits from economies of scale, which can help mitigate costs and increase profitability.
- In the automotive sector, its long-standing relationships with luxury car manufacturers provide strong brand recognition and customer loyalty.
3. Sustainability and ESG (Environmental, Social, and Governance) Focus
Sime Darby has been increasing its focus on sustainability, particularly in its plantation division. The company is committed to improving the sustainability of its palm oil production, which is a key factor in maintaining its competitive edge. Companies with strong ESG (Environmental, Social, and Governance) practices tend to have better long-term prospects, especially as global investors increasingly favor companies with sustainable practices.
Sime Darby has been focusing on achieving:
- Sustainable palm oil production (RSPO certification and other certifications).
- Carbon reduction targets to align with global climate change goals.
- Ethical labor practices and improving the livelihoods of workers in its supply chain.
As sustainability becomes more crucial to investors and regulators, Sime Darby’s commitment to ESG could enhance its reputation and appeal to long-term investors.
4. Steady Revenue Growth and Profitability
Sime Darby has demonstrated solid revenue and profit growth over the years, driven by its diverse businesses. This consistent performance, especially in a region with growth potential like Southeast Asia, can give long-term investors confidence. Investors may be attracted to its ability to generate stable cash flow, which is vital for long-term capital appreciation and dividends.
5. Strategic Divestitures and Restructuring
Sime Darby has periodically undertaken strategic restructuring efforts to refocus its core businesses, often by divesting non-core or underperforming assets. For example, the spin-off of Sime Darby Plantation into a separate entity in 2017 allowed both companies to focus on their respective sectors. Such moves can unlock value and make the remaining core businesses more profitable.
The company’s management has shown a willingness to evolve and make strategic decisions that position it well for future growth, which is an important characteristic for a long-term investment.
6. Attractive Dividends
Sime Darby has a reputation for providing attractive dividends, which is an essential consideration for long-term investors seeking income. Its diversified business model often generates steady cash flows, allowing the company to distribute a portion of those earnings to shareholders. Dividends can provide a reliable income stream in addition to any capital appreciation over the long term.
7. Positive Industry Outlook
- Palm Oil: The global demand for palm oil continues to grow, especially in emerging markets where consumption of processed foods and biofuels is increasing. However, this is also a sector under increasing scrutiny, so long-term investors would want to keep an eye on regulatory changes.
- Automotive: Despite challenges such as economic downturns and shifting consumer preferences, demand for vehicles, especially premium and luxury brands, continues to show growth in Asia, which could benefit Sime Darby’s Motors segment.
- Heavy Equipment and Infrastructure: The infrastructure boom in Southeast Asia and certain parts of Africa and Asia is likely to increase demand for heavy equipment, benefiting Sime Darby’s Industrial division.
8. Exposure to Emerging Markets
Sime Darby’s extensive presence across emerging markets—especially in Asia and Australia—positions it to take advantage of long-term growth trends in these regions. Emerging markets are expected to see robust economic growth, which will likely drive demand for goods and services related to palm oil, automobiles, and industrial equipment.
9. Strong Leadership and Corporate Governance
Sime Darby has historically been led by experienced management, with a clear focus on sustainability, growth, and value creation for shareholders. Its track record of navigating business cycles, expanding into new markets, and strategically divesting non-core businesses demonstrates strong corporate governance and sound decision-making.
Risks to Consider:
While there are many positives, no investment is without risk. Potential challenges include:
- Commodity Price Volatility: The palm oil and industrial equipment sectors are sensitive to fluctuations in commodity prices.
- Regulatory Risks: The palm oil sector is under increasing scrutiny, with regulations tightening in certain markets, particularly related to sustainability and environmental concerns.
- Market Competition: There are significant competitors in the palm oil and automotive sectors that could impact market share and profitability.
Conclusion:
In summary, Sime Darby Berhad represents a potentially solid long-term investment due to its diversified portfolio, market leadership, strong sustainability focus, and steady growth prospects. Its established position in industries like plantation, automotive, industrial equipment, and property gives it a robust foundation to weather economic fluctuations and capitalize on long-term global growth trends. For investors with a long-term horizon, Sime Darby’s stable dividends, exposure to emerging markets, and strategic restructuring efforts make it an intriguing choice. However, potential investors should still be mindful of risks, especially in commodity-driven sectors and regulatory changes.