Sime Darby’s 3QFY22 net profit fell by 29.6% YoY to RM264m as one-off gain totaling RM60m was recognized in 3QFY21. Excluding one-off items, 3QFY22 core net profit fell marginally by 2.1% YoY as the Group’s operations were impacted by weakness in the industrial equipment market in China and higher operating expenses in Australasia Industrial division resulted by Covid- 19 related disruptions. The results were within our but below consensus expectations, accounting for 74.5% and 66.2% of full-year estimates respectively. We make no changes to our forecasts. While we remain optimistic on the Group’s long-term outlook, we see near term headwinds coming from the slowdown in China. We maintain our Neutral call on Sime Darby with an unchanged sum-of-parts (SOP) based TP of RM2.32.
- 3QFY22 revenue fell by 4.1% YoY to RM10.6bn largely due to lower revenue from Industrial division in China (-45.7% YoY) as construction activities slowed down and equipment industry size contracted significantly. It was partly offset by higher revenue from Australasia (+5% YoY), in which was supported by demand from the mining sector. Revenue from Motor division was flat (+0.1% YoY), as lower revenue in China (-1.5 YoY) and Southeast Asia (SEA) (-18.4% YoY) were offset by higher revenue in Malaysia (+26.7% YoY), boosted by reopening of the economy and sales tax exemption.
- 3QFY22 net profit fell by 29.6% YoY to RM264m as 3QFY21 benefitted from one-off gains, i) Singapore Motors GST refund of RM39m and ii) reversal of impairment of RM21m with the sale of stake in Eastern & Oriental Bhd. Excluding the one-off gains in 3QFY21, its core net profit fell marginally by 2.1% YoY. The core net profit was lower mainly due to reduced contribution from the Industrial division (-28.9% YoY), which continued to be impacted by weakness in the industrial equipment market in China and lower operating margin in Australasia. Margin for Australasia Industrial division fell to 4.8% in 3QFY22 (3QFY21: 6.9%) due to labour cost overrun caused by Covid-19 related disruptions. Results were further impacted by lower contribution from Motor division in China (-8% YoY) due to vehicle supply constraints and a loss in Singapore Motor division owing to slow recovery in industry volume. This was partly negated by higher contribution from Malaysia Motor division (+244% YoY) on higher vehicle sales and margins as well as higher profit from assembly operations.
- Outlook. While the long-term growth of China’s luxury sector expected to remain strong, the current lockdown is beginning to affect the Motors division in China. Demand for luxury vehicle in other markets, however remains strong although growth may be capped by supply chain disruption. For industrial division, the positive outlook for metallurgical coal prices and large government infra stimulus is expected to continue to support demand for heavy equipment in Australia. However, outlook for the China industrial equipment market remains uncertain despite government pledged to introduce measure to ease economic pressures. The recent lockdowns in China had negatively impacted business sentiment and caused deferment in construction projects.
Source: PublicInvest Research - 25 May 2022