Sime Darby Bhd - Consolidated Results

Date: 
2024-02-22
Firm: 
TA
Stock: 
Price Target: 
2.84
Price Call: 
BUY
Last Price: 
2.78
Upside/Downside: 
+0.06 (2.16%)

Review

  • Sime Darby Bhd (SIME)’s 2QFY24 results came in above expectations. Note that SIME has consolidated UMW assets into its financial statements in 2QFY24. To recap, SIME has completed acquiring 61.2% shares in UMW on 13 Dec 2023 and increased its total stake to 98.86% as at 31 Jan 2024.
  • Excluding all exceptional items, the core net profit increased 12.3% YoY to RM284mn on the back of a 37.7% rise in revenue.
  • Cumulatively, 1HFY24 core net profit increased by 21.8% YoY to RM609mn.
  • Automotive – For 1HFY24, PBIT increased 20.8% YoY to RM395mn on the back of 21.3% surge in revenue. The higher profit from Malaysian operations (+82.4% YoY) was partially offset by lower profit (-95.2% YoY) from China operations. PBIT in Malaysia increased as a result of higher contribution from the assembly and strategic businesses. The group still experienced lower margins at the China operations. Overall unit sales grew 23.1% YoY to 69.3k units.
  • Industrial – 1HFY24 PBIT increased by 61.1% YoY to RM709mn, mainly driven by higher profit from Australasia. Note that this region registered higher contributions from Onsite Rental (acquired in April 2023) and Cavpower (acquired in Nov 2023).
  • UMW – 1HFY24 PBIT contribution from UMW amounted to RM46mn as the profit was partially offset by the acquisition related expenses. Note that the business segments under UMW include Automotive, Equipment, Manufacturing and Engineering and others.
  • The group declared an interim dividend of 3 sen/share for the quarter under review.

Impact

  • We tweak FY24 - FY25 earnings upward by 6.7% - 9.4% after factoring in higher-than-expected 3Q results and earnings impact from UMW’s acquisition. Besides, we also introduce out FY26 earnings forecast of RM1,373.5bn (+4.2% YoY).

Outlook

  • The industrial division is expected to perform well, premised on the robust order book in Australia from the mining and construction sectors.
  • However, the market volume for industrial equipment in China remains uncertain with the continued distress in the property market.
  • We expect automotive sales in China to continue to be impacted by a brutal price war, especially in electric vehicles (EVs), which show a slow pace of growth. Management expects the price wars to continue to affect margins in a saturated market.
  • The acquisition of UMW is expected to contribute positively to SIME’s bottomline, despite synergies still remain unclear at this juncture.
  • According to management, Sime is still doing the assessment to identify non-core business and more details will be shared in the next quarter’s briefing.
  • Meanwhile, SIME has the intention to dispose of Komatsu business unit under UMW by the end of CY24. Note that Komatsu and Caterpillar (Sime is the exclusive dealer in some regions) are competitors in the heavy machinery industry segment.
  • The current outstanding booking for UMW Toyota Motor (UMWT) and Perodua have further slowdown to about 28k units and 128k. No change to the 2024 sales target volume of 95k units for Toyota and Lexus vehicles (-12% YoY).

Valuation

  • Rolling forward our valuation base year to CY25, we revise SIME’s TP to RM2.84 (previously RM2.50), based on sum-of-parts (SOP) valuation. Upgraded SIME from Hold to BUY due to potential upside of more than 12%.

Source: TA Research - 22 Feb 2024

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