Sime Darby’s 2QFY22 net profit fell by 45.5% YoY to RM345m as a one-off gain of RM272m on the disposal of a 30% stake of Tesco Malaysia was recognised in 2QFY21. Excluding one-off items, its 2QFY22 core net profit fell marginally by 4.4% YoY mainly due to lower profit from Industrial division in China and Australasia. The results were within our and consensus expectations, accounting for 53% and 47.1% of full-year estimates respectively. We make no changes to our forecasts. We maintain our Neutral call on Sime Darby with an unchanged TP of RM2.32. An interim dividend of 4 sen per share declared for the quarter.

• 2QFY22 revenue fell marginally to RM10.5bn (YoY: -6.3%, QoQ: -1.3%) mainly due to lower revenue from Industrial division (YoY: -39.3%, QoQ: +0.8%) and Motor division (YoY: -13.1%, QoQ: -16.6%) in China. The slowdown in construction activities and supply chain constraints had resulted in lower equipment and vehicle sales in China.

• 2QFY22 core net profit came in at RM345m (YoY: -4.4%, QoQ: +46.2). The lower core net profit was mainly due to lower contribution from Industrial division which was affected by industry volume contraction in China and weaker operating margin in Australasia. While Motor division posted lower unit sales, especially in China, it was offset by higher margins. Motor division PBIT margin improved from 3.9% to 4.2%, boosted by strong results from Malaysia’s assembly operation and Australasia’s commercial vehicle and transport operations.

• Outlook. The demand for luxury vehicles is expected to remain strong, especially in China, although sales were affected by supply chain constraint, vehicle inventory supply may increase notable in coming quarters as auto chip shortage eases. The outlook for Industrial division remains mixed. While order book increased 20% to RM3.9bn mainly from mining equipment segment in Australia driven by strong commodity prices, heavy equipment market in China is expected to contract as property debt risks persist, exacerbated by intense competition from local manufacturers.

Source: PublicInvest Research - 17 Feb 2022