• Maintain BUY (TP: 3.00). Sime Darby’s FY24 top-line grew to RM67.1bn (+39% YoY) which is in-line with our expectation accounting for 107%. The group’s core net profit of RM1.0bn (-6.1% YoY) made up only 79% and 90% of our and consensus estimate respectively as it is distorted by higher effective tax rate. Sime Darby’s revenue rose by (+39% YoY) driven by consolidation of newly acquired UMW Holdings. The company declared a second interim dividend of 10sen, translating in a total payout of 13sen for FY24, which is the same as FY23. We maintain a BUY call with TP to RM3.00, pegged at 12x PER (based on 3-year mean PER) to FY25F EPS of 25sen.

• Key Highlight. In 4QFY24, Sime Darby reported an (+41.4% YoY) increase in revenue, driven by: i) higher sales in the industrial division, supported by higher product support and mining equipment sales; ii) robust performance in the motor division, particularly in Malaysia, Singapore, and Taiwan; and iii) sales contributions from consolidation of UMW Holdings. Meanwhile its core net profit decline by (-85.9% YoY) due to i) one-off impairments and provisions of RM299mn in China, ii) deferred tax provision, iii) losses recorded in Mainland China’s motor division due to significant price pressure, and iv) lower dividend income. However, the decline was largely offset by significantly higher profits from its operations in Malaysia and Singapore.

• Earnings revision. No changes to our earnings forecast.

• Outlook. Excessive production in the automotive manufacturing sector has created an oversupply scenario in China, exerting downward pressure on margins. Nevertheless, anticipated government support measures, such as i) subsidies for car trade-ins, ii) reducing overcapacity by slowing the approval of new EV production plans, and iii) easing car loan policies, are expected to help mitigate these challenges. Despite these headwinds, we forecast continued strong performance from the industrial division, underpinned by: i) a solid order book totalling RM4.4 bn; ii) robust demand for equipment and maintenance services from the mining sector in Australia, as well as from data centers and the energy sector in Malaysia and Singapore. Concurrently, the motor division is expected to benefit from increased demand for electric vehicles (BYD) in Malaysia and Singapore, while UMW Holdings will see support from a substantial order backlog, including 20k units for Toyota and 100k units for Perodua.

Source: BIMB Securities Research - 28 Aug 2024