Sime Darby's 1QFY25 headline net profit rose to RM795.0m (+34.1% YoY), primarily driven by a one-off gain from the disposal of Malaysia Vision Valley land and profit contribution from the UMW division. Excluding non-operating items, the Group's estimated core net profit stood at RM354.0m (+17.2% YoY). The results were within both our and consensus estimates, accounting for 25.0% and 22.5% of full year forecasts, respectively. We make no changes to our earnings forecasts and reiterate our Neutral call on Sime Darby, with an unchanged SOP-based TP of RM2.45.

• 1QFY25 revenue increased by 30.6% YoY to RM18.3bn, driven by higher sales in the Industrial divisions and contribution from the UMW division. Revenue for the Industrial division rose by 9.4% YoY to RM5.2bn, mainly due to increased sales of product support and mining equipment in Australia. For the newly acquired UMW division, revenue improved by 6.4% QoQ to RM4.4bn, primarily due to higher motor vehicles sales from Perodua, which recorded 89,192 units during the quarter (1QFY24: 87,917 units). This was partly offset by a lower contribution from the Motors division, where revenue declined by 5.9% YoY to RM8.7bn, attributed to challenging operating conditions for all markets except Singapore.
• 1QFY25 core net profit improved by 17.2% to RM354.0m, due to profit contribution from the UMW divisions. The newly acquired UMW division, where core profit before interest and tax (PBIT) increased by 25.1% QoQ to RM214m for the quarter, in line with higher vehicles sales. This was partly offset by lower contribution from both Industrial and Motor divisions. PBIT for the Industrial division declined by 9.2% YoY to RM343.0m, mainly due to the impact by a currency-related parts price reduction. On the other hand, the Motor Division's PBIT fell marginally by 17.7% YoY to RM190.0m due to challenging market condition in its key operating markets.
• Outlook for the Group remains uncertain. While challenging business condition in China are expected to persist, with price wars likely to continue. In Malaysia, demand for motor vehicles is expected to soften due to the expected fuel subsidy rationalisation and the introduction of a high value goods tax. Additionally, the influx of China OEM and competitive pricing may intensify market competition, further squeezing profit margins and limiting earnings growth. Despite these headwinds, the robust performance of Industrial division in Australasia, Malaysia and Singapore is expected to cushion the weakness in its China operations.

Source: PublicInvest Research - 29 Nov 2024