Investment Highlights

• We maintain BUY on Sime Darby with a higher SOP-based fair value of RM2.86/share (from RM2.40/share previously) as we roll over our valuations to FY22F with a higher PE of 9x (from 8x) for its motor segment, in line with BMW Germany’s 5-year historical average forward PE. We have also increased Sime’s industrial segment’s PE to 19x (from 16x), which is in line with Caterpillar Inc’s 5-year historical average forward PE. No changes to our FY21–23F earnings estimates.
• Sime Darby registered a 1QFY21 core net profit of RM272.0mil, which is within expectations, accounting for 24% of ours and 25% of consensus full-year forecasts respectively.
• Sime Darby’s motor segment recorded a strong top line of RM7.1bil (+31% YoY) in 1QFY21 on higher vehicle sales from both China (+39% YoY) and Malaysia (+46% YoY). In China, the improvement was attributed to robust sales in the premium car segment post-lockdown while in Malaysia, the stronger sales of vehicles were driven by the SST exemption. Overall, the motor division chalked up an impressive 1QFY21 core PBIT of RM223mil (+66% YoY).
• Sime Darby’s industrial segment posted a lower 1QFY21 PBIT of RM197mil (-25% YoY) on weaker PBIT contributions from 3 regions – Australia, Malaysia and Southeast Asia. Notably, the Australasia industrial segment registered a lower 1QFY21 core PBIT of RM127mil (-34% YoY). On the flipside, China’s Industrial segment recorded a strong 1QFY21 core PBIT of RM58mil (+38% YoY), attributed to higher profits due to higher equipment sales following the rise in government infrastructure investments in the region.
• Sime Darby’s industrial order book remains decent at RM2.3bil, mainly from the Australia region (66%).
• Sime Darby’s balance sheet as at 30 Sept 2020 is sturdy, flipping into a net cash position of RM576mil or 8.4 sen/share, from a net gearing ratio of 0.04x in the previous quarter.

Source: AmInvest Research - 27 Nov 2020