Review

• Sime Darby Bhd (SIME)’s 4QFY23 results came in within ours but above consensus’ estimates. Excluding all exceptional items, the core net profit increased 16.6% YoY to RM471mn on the back of a 22.4% rise in revenue. The higher profit was mainly premised on stronger performance from the industrial division.

• Cumulatively, FY23 core net profit declined 4.7% YoY to RM1,153mn, accounting for 105% of ours and 114% of consensus’ full-year estimates.

• Automotive – For FY23, despite higher unit sales (+15.0% YoY to 116.8k units), PBIT actually decreased by 33.6% YoY to RM497mn excluding the gains on property disposal of RM179mn and dividend income. The weak performance was mainly dragged by lower profit contribution from China operations and lower margins.

• Industrial – FY23 PBIT increased by 30.9% YoY to RM1,051mn, mainly driven by higher profit from Australasia. Note that this region registered higher contributions from the Onsite Rental operations, which SIME acquired in April 2023.

• The group declared a second interim dividend of 10.0 sen/share for the quarter under review. This will bring the total dividend to 13.0 sen/share for FY23, which is higher than 11.5 sen/share in FY22.

Impact

• We tweak our FY24 and FY25 earnings forecasts higher by 0.9% and 0.5% after updating FY23 figures into our forecasts.

Outlook

• We expect automotive sales in China to continue be impacted by sluggish consumer demand due to weak economic outlook and higher interest rates. A full-blown price war will continue to affect the group’s margin, in our view.

• The industrial division is expected to perform well, premised on the backlog of orders in Australia from the mining and construction sectors.

• Meanwhile, management expects the market volume for industrial equipment in China is likely to be subdued until government funding is allocated to the construction players.

• On another note, SIME announced that the group has entered into a conditional sale and purchase agreement (SPA) with Permodalan Nasional Berhad (PNB) to acquire PNB’s 61.2% stake in UMW Holdings Berhad (UMW) for a cash consideration of RM3.57bn or RM5.00/share (kindly refer to our sector reports for more details)

Valuation

• Maintain SIME as BUY with a higher TP of RM2.50/share (previously RM2.44), after the earnings adjustment based on sum-of-parts (SOP) valuation.

Source: TA Research - 25 Aug 2023