Sime Darby’s 1QFY24 headline net profit more than doubled to RM565.0m mainly owing to Malaysian Vision Valley (MVV) land disposal gain of RM251m. Excluding non-operating items, core net profit was still higher by 45.4% YoY at RM301.0m largely due to strong performance in Australasia Industrial division. The results were within our and consensus’ estimates, accounting for 24.0% and 25.7% of full-year estimates respectively. We keep our estimates unchanged. Near-term outlook for the Group remains mixed as challenging business environment in China for both its Industrial and Motors division persist. In addition, elevated interest rates environment and ongoing geopolitical conflicts and tensions continue to weigh on global economic growth. We maintain our Neutral call on Sime Darby with unchanged sum-ofparts (SOP) based TP of RM2.41.

• 1QFY24 revenue climbed to RM13.9bn (+14.8% YoY, +5.2% QoQ) on higher sales from both Motor and Industrial divisions. Revenue for Motor business increased to RM9.2bn (+15.9% YoY, +12.3% QoQ) following higher sales volume in all markets driven by new model launches. For the Industrial division, revenue improved to RM4.7bn (+12.6% YoY, -6.3% QoQ) on higher sales from most markets particularly Australasia (+18.4% YoY). This was partly offset by weakness in China (-18.9% YoY, -10.5% QoQ) with market sentiment remains weak and projects still being put on hold.

• 1QFY24 core net profit YoY increased to RM301.0m (+45.4% YoY, - 35.0% QoQ) mainly owing to higher contribution from Australasia Industrial division and Malaysia’s Motors business, though weaker QoQ on the absent of dividend income from BMW Malaysia. The strong performance from Australasia Industrial was largely attributed to higher product support revenue and contribution from Onsite Rental Group which was acquired on 3rd Apr 2023. Whereas for the Motors Division, profit from Malaysia almost doubled on higher vehicle sales and better contribution from the assembly segments (Inokom). This was however partly offset by weakness in China market which affected by margin compression despite higher sales.

• Outlook. Near-term outlook for the Group remains mixed. China being one of the key markets for the Group is seeing faltering growth. While China economy is on track to meet its 2023 growth target of 5%, the country’s GDP expected to slow to 4.6% in 2024 amid continued weakness in the property sector, subdued external demand and overcapacity. The growth for Malaysia’s Motor business is expected to moderate following the expiration of the sales and service tax (SST) exemption. Nevertheless, the Chinese government is expected to roll out more plans and measures to prop up the economy and boost demand. Additionally, the strong orderbook underpinned by mining and construction sector in Australia is expected to continue support the industrial division performance.

Source: PublicInvest Research - 28 Nov 2023