Sime Darby’s 3QFY24 net profit jumped to RM349m (+45.2% YoY, +34.2% QoQ), mainly owing to higher profits from Industrial division and full consolidation of the newly acquired UMW. Excluding non-operating items, 9MFY24 core net profit came in at RM899m. The results were below our and consensus’ estimates, accounting for 64.9% and 66.5% of our and consensus full-year estimates respectively. We keep our forecast unchanged however, as we expect better quarter ahead underpinned by better performance from the Industrial segment in Australia and dividend income from BMW Malaysia. We retain our Neutral call on Sime Darby with unchanged sum-of-parts (SOP) based target price of RM2.73.

• 3QFY24 revenue increased to RM18.8bn (+63.4% YoY, +21.1% QoQ) onhigher sales from all three business divisions namely, Industrial, Motorsand UMW. Revenue for Industrial division increased to RM5.2bn (+42.3%YoY, +4.4% QoQ), mainly attributed to higher sales for product supportand mining equipment in Australia. On the Motors front, revenue increasedby 17.7% YoY to RM9.2bn due to stronger revenue growth in Malaysiaand Singapore, supported by favourable government policies andintroduction of more new EV models. On the newly acquired UMWdivision, revenue tripled QoQ to RM4.3bn, as this is the first full quartercontribution to the Group.

• 3QFY24 core net profit increased to RM349.0m (+58.6% YoY, +40.7%QoQ) owing to higher contribution from UMW and Australasia Industrialdivision. Profit before interest and tax (PBIT) for the UMW division wasRM262m for the quarter, largely contributed by UMW’s automotivebusiness. The Australasia Industrial division saw a 48.6% YoY jump inPBIT to RM315.0m, mainly driven by higher revenue and profit generatedfrom Onsite Rental Group (acquired in April 2023) and Cavpower Group(acquired in Nov 2023). PBIT for the Motors Division increased by 5.9%YoY to RM180m mainly attributed to stronger performance in theMalaysian and Singaporean market on higher vehicle sales. This washowever partly negated by stiff competition in China despite higherrevenue and sales volume.

• Outlook for the Group remains mixed. The business conditions in Chinacontinue to face intense competition and price wars are likely to persist.Furthermore, demand for motor vehicles in Malaysia is expected tomoderate in the second half of 2024 in view of the expected fuel subsidyrationalization and high value good tax. Nonetheless, the strongperformance of Australasia Industrial is expected to cushion the weaknessin its China operations. Demand for mining equipment and productssupport for Australia Industrial equipment market likely to stay on itsupward trajectory, supported by robust commodity prices.

Source: PublicInvest Research - 24 May 2024