Review

• Sime Darby Bhd (SIME)’s 4QFY24 results came in within expectations. After excluding exceptional items, the core net profit declined by 20.4% YoY to RM375mn, despite a 41.4% increase in revenue. The weaker performance was primarily due to losses from the Motors Mainland China operations and reduced dividend income.

• Cumulatively, FY24 core net profit rose by 7.9% YoY to RM1.4bn, driven primarily by strong performance in the Industrial division and contributions from the UMW division.

• Automotive – For FY24, PBIT dropped by 44.5% YoY to RM584mn. However, excluding exceptional items, core PBIT declined by 6.9% YoY to RM813mn. The weaker performance was primarily attributed to losses in China. These losses were partially offset by higher profits from operations in Malaysia and Singapore. Notably, the China operations reported a loss of RM123mn, compared to a profit of RM124mn a year ago, largely due to significant discounts offered to buyers although the discounts have garnered higher unit sales of 22.4% YoY to 143k units.

• Industrial – In FY24, PBIT increased by 39.6% YoY to RM1.5bn, primarily driven by higher profit from the Australasia region. Notably, this region saw increased profit from the product support and mining equipment segments, as well as contributions from Onsite Rental (acquired in Apr 2023) and Cavpower (acquired in Nov 2023).

• UMW – In FY24, UMW contributed RM480mn to PBIT. Note that the business segments under UMW include Automotive, Equipment, Manufacturing and Engineering and others.

• The group declared a second interim dividend of 10.0sen/share, bringing the cumulative dividend to 13.0sen/share for FY24.

Impact

• We adjust our earnings forecast for FY25 and FY26 upward by 0.9% and 1.8%, respectively, after updating the FY24 earnings.

Key Takeaways From the Analysts’ Briefing

• The China automotive market remains challenging, with heavy discounting being a key issue. However, there are signs of more rational behaviour from both auto dealers and manufacturers, as the rate of discounts has reduced. All in all, the timeline for a full recovery is still uncertain.

• Besides, in reviewing the business in China, the group plans to shut down several branches and looking to phase out certain brands. Cost-saving measures are also implemented as part of this strategy.

• The automotive division in Malaysia is expected to have a strong year in 2024. However, with the entry of Chinese EVs into the market, competition is expected to intensify further.

• The industrial division is expected to perform well, premised on the robust order book in Australia from the mining and construction sectors.

• Meanwhile, management indicated that the Industrial division in Malaysia received additional support from increased demand for generators in the energy sector and data centres. They anticipate continued growth in data centre opportunities and expect the engine segment to remain sustained by rising investments in data centres.

• The current outstanding bookings for UMW Toyota Motor (UMWT) and Perodua stood at about 20k unis and 100k units, respectively.

• Management expects that the rationalisation of fuel subsidies will negatively impact car sales in the short term. However, they expect sales to rebound once the initial effects of the subsidy changes have worked through the market.

Valuation

• Maintain SIME as HOLD with a revised TP of RM2.74/share, based on sum-of-parts (SOP) valuation.

Source: TA Research - 28 Aug 2024