• 6MFY21 core net profit rose 12.2% yoy to RM633m, above both our and consensus expectations
• Specifically, motor division had a stellar 6MFY21 as revenue and PBIT rose to RM14.3bn (+23%) and RM505m (+82%) respectively
• We raise our earnings forecasts by 8-11% for 2021-23E, mainly inputting higher motor sales and margins. Nonetheless, our SOTP-derived is lowered to RM2.30 after incorporating lower valuation multiples for ongoing risks of China’s trade ban on coal and supply disruption for its motor division. Maintain HOLD

6MFY21: Above Expectations

Sime Darby posted a revenue of RM22.1bn (+12.4% yoy) for 6MFY21, underpinned by higher contribution from its motor division but negated by industrials and logistics divisions. Motor division sales rose to RM14bn (+23% yoy), on the back of higher vehicle sales across all geographical operations, particularly China where performance of BMW and luxury marques remained strong. Industrial segment, however, was softer at RM7.7bn (-3.3%) due to lower equipment and parts sales in Australia. Overall EBIT margins were softer due to lower industrial sales mix which command a better margin. All in, inclusive of higher share of JV and associate profits yoy, core net profit came in at RM633m (+12.2% yoy) – above our and consensus expectations. Variance to ours was mainly on higherthan-expected motor contribution.

Strong Performance Seen With Motor Division

On a qoq basis, Sime registered revenue and core net profit (excluding Tesco disposal gain of RM272m) of RM11.2bn (+3.4%) and RM361m (+33%) respectively. Both industrial and motor segments performed better sequentially, underpinned by better margins seen with Australia ops (industrial) and lower discounting (motor). Sime declared a DPS of 6 sen for 6MFY21 (inclusive special DPS of 4 sen from Tesco sale) – above expectations (6MFY20: 2 sen)

Maintain HOLD

We raise our FY21-23E EPS estimate by 7-11% after incorporating higher sales volume and margins for the motor division. Meantime, we lower our valuation multiples to reflect ongoing risks surrounding the China-Australia trade relations and supply disruption for its motor division over the near term. Post revision, our SOTP-derived TP is lowered to RM2.30 from RM2.59. Maintain HOLD. Key up/downside risks include higher/lower-thanexpected contribution from the industrial division and higher/lower-than-expected car sales.

Source: Affin Hwang Research - 26 Feb 2021