• FY20 core net profit declined by 5% yoy to RM1bn, but was above expectations
• Operationally, Sime’s FY20 core PBIT was up by 8% yoy to RM1.6bn, thanks to stronger contribution from the industrial division.
• Raised our EPS forecasts for FY21-22E by 9-11%, and our 12-month SOTPbased PT to RM2.76. Reiterate BUY.

Industrial Division Remained the Star Performer in FY20…

Sime’s industrial division continued to perform well in FY20: core PBIT (profit before tax interest and tax) rose by 23% yoy to RM1bn, driven by higher equipment deliveries and product support sales to the Australia mining sector (+32% yoy to RM717m) and China infrastructure sector (+13% yoy to RM212m). The industrial orderbook of RM2.2bn as at June20 (-9% yoy) should support near-term earnings; the recovery in coal prices and higher infrastructure spending in China bode well for the industrial division, we believe.

…while the Rest Bore the Brunt of the Covid-19 Pandemic.

Meanwhile, Sime’s motor division’s FY20 core PBIT fell by 3% yoy to RM600m, as a result of lockdown measures in its key markets, partly cushioned by the higher contribution in China (+18% yoy to RM277m). At our recent auto conference, Sime said it was seeing strong catch-up spending in the China market and signs of recovery in Malaysia, backed by cheaper car prices from the SST exemption. The logistics division’s FY20 core PBIT dropped by 65% yoy to RM15m, due to lower throughput and higher JV losses of RM13m. The healthcare division was also not spared from the Covid-19 pandemic – FY20 core PBIT decreased by 20% yoy to RM39m.

FY20 Earnings Above Expectations; FY20 DPS of 10sen

Overall, Sime’s FY20 earnings were above the consensus and our expectations at 112- 113% of the respective full-year forecasts. The variance was due to stronger-thanexpected performance from the industrial and motor divisions. Sime declared a second interim dividend of 7sen and a special dividend of 1sen, bringing FY20 dividends to 10sen (FY19: 10sen).

Maintain BUY

We raise our FY21-22E EPS estimates by 9-11% to account for the higher contribution from the industrial and motor divisions, and introduce our FY23E estimates. In tandem, we raise our SOTP-derived price target to RM2.76 (from RM2.69; Fig 3). Key downside risks include: 1) competition in the respective divisions, 2) susceptibility to an economic slowdown, and 3) local regulatory risks.

Source: Affin Hwang Research - 28 Aug 2020