Sime Darby reported a 4QFY21 core net profit of RM375.0mm (+16.1% YoY, +56.3 QoQ), bringing its full year FY21 core net profit to RM1,248m (+20% YoY). The results were within our and consensus expectations, accounting for 95% and 105% of full-year estimates respectively. The Group’s commendable performance for FY21 was attributed to strong performance from the Motors division, despite challenges emanating from the Covid-19 pandemic. We maintain our Outperform call on Sime Darby with SOTP-based unchanged target price of RM2.78. A special and interim dividend of 1sen and 8sen per share respectively were declared, making it a cumulative 15sen for FY21.

• 4QFY21 revenue increased by 28.6% to RM11.3bn mainly due to higher revenue from its Motors Segment (+50.0% YoY) and Industrial Segment (+5.5% YoY). Higher revenue from the former was attributed to increased sales volume in the luxury segment across all regions, particularly in China, supported by strong BMW vehicle sales. Industrial Segment’s higher revenue was lifted by China’s higher equipment revenue supported by government infrastructure investment.

• 4QFY21 core net profit came in at RM375m (+16.1% YoY, +56.3 QoQ) after adjusting for 1) impairment of leasehold land amounting RM89m, 2) impairment for the logistics-related business amounting to RM85m, 3) gain on disposal of properties in the Motors segment amounting to RM38m and 4) foreign exchange (FX) losses of RM15m. The higher core net profit was mainly driven by the Motors segment with core profit before interest and tax (PBIT) of RM346m (+57.3% YoY, +64% QoQ), attributed to higher revenue and margin in China operations. Industrial segment reported higher core PBIT of RM246m (+5.6% YoY) due to higher profit from Australasia operations (+35.1% YoY). These were partially offset by lower PBIT from the China operations (-61.4% YoY) however due to lower margins, resulting from intense competition.

• Outlook. We note that sale of luxury vehicles have continued to remain strong in the region, particularly in China as consumers swap their travel for luxuryrelated spending in the medium term, underpinned by growing affluence over the long run. For the Industrial segment, higher equipment sales supported by fiscal stimulus measures in countries such as China and Australia have however been faced with strong competition from local Chinese manufacturers which have adversely impacted margins. On-going trade tensions between Australia and China may also continue to dampen equipment sales to the mining industry in Australia.

Source: PublicInvest Research - 26 Aug 2021