• Still BUY with new MYR3.15 TP (SOP) from MYR3.10, 37% upside, c.7% FY25F (Jun) yield. Sime Darby’s 1QFY25 (Jun) earnings met our and Street's full-year forecasts. We continue to like SIME, which is our sector Top Pick, for its robust industrial segment on top of wide-ranging offerings within the local auto market.

• In line results. Sime’s 1QFY25 core earnings rose 11% YoY to MYR359m. This largely met our and Street’s expectations, at 23% of full-year forecasts. The YoY rise was mainly due to consolidation of UMW’s contribution.

• 1QFY25 motor segment PBIT fell 6% YoY, mainly because of its weaker contribution from Malaysia operations which saw a 13% YoY decline. This was in line with our expectation of cyclical TIV decline. Its China operations are now back to black this quarter with a MYR6m PBIT (from MYR105m LBIT in 4QFY24), albeit -68% YoY as margins declined due to aggressive price war.

• Industrial segment’s PBIT slipped 9% YoY, as Australasia operations’ PBIT fell 7% YoY due to downward price revision on equipment parts resulting in lower margins on top of currency translation loss. However, Australasia operations remain solid, with its orderbook rising to MYR2.84bn in October from MYR2.76bn in June.

• UMW’s performance. UMW contributed MYR302m to SIME’s bottomline during the quarter – making up 30% of core PBIT. The addition of mass market brands, ie Perodua and Toyota, under UMW strengthens SIME’s presence in the local auto market as Malaysia now accounts for 36% of its 1QFY25 revenue, up from 18% pre-acquisition.

• Divestment of non-core segments. SIME recently concluded its divestment of Komatsu at no gain/loss (sold at NBV) in October, on top of the sale of c.1,400 acres of MVV land in September. Though SIME still has c.4,200 acres of MVV land, it is not actively looking to divest the remaining portion. Therefore, we do not expect any further sizeable divestment of non-core operations at this juncture.

• Outlook. We expect the industrial division to post strong numbers in line with robust commodity demand. Though demand for coal from China is expected to fall due to falling steel prices, Australia has diversified its export of metallurgical coal with India, Japan, and South Korea as its main customers. In Malaysia, the motor segment is expected to remain strong, supported by anticipated uptick in EV sales before the tax holiday expires end-2025 while Perodua continues to be Malaysia’s favourite car brand.

• Keep BUY with a higher MYR3.15 TP. We revised up FY25F-26F earnings by 2% to account for recent upward revision of our 2025 Perodua sales volume assumption to 330k units (from 310k units). Our TP includes a 2% ESG discount. Risks: Weaker-than-expected margins, softer-than-expected car sales across its markets, and longer-than-expected downturn in China.

Source: RHB Securities Research - 29 Nov 2024