This article first appeared in The Edge Malaysia Weekly on March 20, 2023 - March 26, 2023
INOKOM Corp Sdn Bhd, Sime Darby Bhd’s indirect subsidiary, is in the final stage of negotiations with UK-based Jaguar Land Rover to assemble a couple of their models in Malaysia for the regional market, sources say.
While the talks with Jaguar Land Rover are ongoing, Inokom is also understood to be at the tail end of similar contract assembly negotiations with China’s Chery Automobile Co Ltd. In addition, it is looking to ramp up the number of vehicles being assembled for Germany-based high-end auto outfit, Porsche AG.
Sime Darby responded to The Edge’s queries on the potential new marques for assembly and the enhancement of existing contracts, but it neither confirmed nor denied the possibility.
“Sime Darby Motors is a partner of choice for some of the world’s leading brands, giving our customers access to a network of world-class products and services. That being said, we are always on the lookout for new partners, even more so as global economic prospects take a turn for the better,” the diversified group says in an email reply. “We are also always looking to forge stronger relationships with our existing partners.”
Sime Darby controls more than 51% of Inokom, with a 51% stake held via its 100%-owned Sime Darby Motors. Inokom’s other shareholders are Bermaz Auto Bhd (29%), South Korea-based Hyundai Motor Co (15%) and Sime Darby Hyundai Sdn Bhd (5%).
Word of Inokom’s plans has hit the market, with three separate sources claiming to be aware of the talks.
One of the sources says, “There could be significant investments into Inokom with all these new developments. The increase in Porsche marques is especially major, considering the plant (Inokom) is Porsche’s first assembly plant outside Europe.”
Another source familiar with the developments at Inokom says that the contract assembly for regional markets could boost the company’s earnings significantly.
Currently, Inokom assembles BMW, MINI, Hyundai, Kia, Porsche and Mazda vehicles. For Porsche, the assembly is limited to the popular sports utility vehicle Porsche Cayenne at the moment.
Sime Darby Motors’ wholly-owned Sime Darby Auto Engineering Sdn Bhd also undertakes the assembly of engines for BMW in Inokom’s plant in Kulim, Kedah, which sets it apart from other players. Sime Darby Auto Engineering has the capacity to produce up to 10,000 engines a year.
“To have BMW trust Inokom with the engines says a lot for its capability, so it’s not a surprise that other players are talking to them,” another source adds.
It has been reported that Chery is looking to officially launch its brand in Malaysia in mid-2023, with a starting line-up of three models. At present, its cars in China are left-hand-drive models, which would mean that some reworking could be required in Malaysia, a right-hand-drive market.
Presently, Sime Darby has 10 brands under its belt including BMW, Jaguar, Land Rover and Porsche, as well as mass market brands such as Ford and Hyundai. It also has four distributorships with over 89 dealers nationwide and 26 wholly-owned franchise retail outlets in Malaysia.
The Inokom assembly plant has the capacity to produce 38,000 units a year, according to Sime Darby’s website. There is still room for expansion as the current facility takes up around 75% of the capacity at the 200-acre site. In 2022, the total number of vehicles assembled at Inokom was 28,176 units.
Aside from luxury cars, Sime Darby has also been busy expanding its electric vehicle (EV) offerings. Last December, Sime Darby Motors was appointed the official exclusive distributor of China-based BYD Co’s electric cars. The group has earmarked an investment of RM500 million to establish BYD nationwide, with a target of 20 showrooms by 2024.
“On the subject of electric vehicles, we aim to be a leader of EV in Asia-Pacific. Sime Darby Motors has long-term plans to assemble EVs, and such plans would be made known to the public as and when the time is right,” Sime Darby says when asked about its plan for the EV market.
Sime Darby also has a huge presence in China and Australia for its BMW distributorships.
For the six months ended December 2022, Sime Darby chalked up a net profit of RM596 million from RM23.47 billion in revenue.
As at end-December last year, it had bank balances, deposits and cash of RM2.57 billion, while on the other side of the balance sheet, it had short-term liabilities of RM3.5 billion and long-term debt commitments of RM247 million, which works out to a net gearing of just 0.07 times.
On its prospects, Sime Darby says, “The group’s net profit from continuing operations in the first half of the financial year was largely impacted by the lower profit at the motors operations in China.
“The various risks that may impact global economic growth remain heightened, with ongoing monetary tightening by central banks, inflationary pressures and geopolitical tensions … The automotive sales in China are likely to be impacted by the changes in consumer spending patterns following the major easing of Covid-19 restrictions.
“In Malaysia, the vehicle order backlog from post sales and service tax exemption deliveries should begin to tail off. Thus, industry volume is expected to moderate. New vehicle model launches are expected to boost sales, although this may be capped by supply constraints.
“The group’s operating environment is expected to continue to be challenging. Taking into account the one-off gains, mainly from the disposal of non-core assets expected to be recognised in the current financial year, the board expects the group’s financial performance for the financial year ending June 30, 2023, to be better than that of the previous financial year.”
Sime Darby ended trading at RM2.12 last Thursday, translating into a market capitalisation of RM14.45 billion.
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