Sime Darby’s 2QFY24 headline net profit surged to RM2.3bn mainly owing to RM2.0bn gain on the disposal of Ramsay Sime Darby Health Care (RSDH) in Dec 2023. Excluding non-operating items, core net profit was still higher by 7.2% YoY at RM269.0m largely due to better contribution from Australasia Industrial division. The results were within our and consensus’ estimates, accounting for 45.5% and 47.9% of full-year estimates respectively. We raise FY24/25/26 estimates by an average of 20% to account for earnings accretion from UMW acquisition which was completed in Feb 2024. Consequently, our sum-of-parts (SOP) based target price raised to RM2.73 (RM2.41 previously). Due to limited upside potential, we maintain Our Neutral call on Sime Darby. A first interim dividend of 3.0sen per share was declared. (2QFY23: 3.0sen).

• 2QFY24 revenue increased to RM15.5bn (+37.7% YoY, +11.2% QoQ) onhigher sales from both Motor and Industrial divisions. Revenue for Motorbusiness increased to RM9.6bn (+27.0% YoY, +3.9% QoQ) followinghigher sales volume in all markets driven by new model launchesparticularly in the Malaysian market. Malaysia Motor revenue increased toRM2.4bn (+50.1% YoY, +11.8% QoQ) in line with higher sales volume of8.6k units (+53.4% YoY, +13.8% QoQ). For the Industrial division, revenueimproved to RM5.0bn (+34.0% YoY, +5.3% QoQ) on higher sales frommost markets particularly Australasia. This was partly offset by lowerdeliveries of new equipment in China (-8.6% YoY) as market sentimentremains weak.

• 2QFY24 core net profit YoY increased to RM269.0m (+7.2% YoY, -10.6%QoQ) mainly owing to higher contribution from Australasia Industrialdivision and Malaysia’s Motors business, though weaker QoQ asweakness in China persist. The Australasia Industrial division saw a 71.8%YoY jump in profit before interest and tax (PBIT) to RM299.0m, mainlydriven by higher revenue and profit generated from Onsite Rental Group(acquired in April 2023) and Cavpower Group (acquired in Nov 2023).PBIT for the Motors Division YoY increased by 27.2% to RM192m mainlyattributed to strong performance in the Malaysian and Singaporean marketon higher vehicle sales. This was however partly negated by stiffcompetition in China despite higher revenue and sales volume.

• Outlook. China being one of the Group’s key markets continue to faceheadwinds and remains challenging amid prolonged downturn in propertysector, sluggish export, weakening demand and overcapacity. The strongperformance of the Group’s Malaysia Motor and Australasia Industrial isexpected to cushion the weakness in its China operations. The full exitfrom non-core healthcare business and the recent acquisitions of UMW,Onsite and Cavpower should further expand its presence, broadenearnings and continue to support the Malaysia Motor and AustralasiaIndustrial division performance.

Source: PublicInvest Research - 22 Feb 2024