• Still BUY, new MYR3.10 SOP TP from MYR3.20, 21% upside, c.6% FY25F (Jun) yield. FY24 earnings met our forecasts but missed Street's full-year estimates. We remain positive on Sime Darby due to industrial wing’s strong performance in Australasia and full-year contributions from recently acquired UMW. It positions SIME towards providing a wide range of offerings across different market segments in the local automotive industry.

• In line. FY24 core earnings of MYR1.3bn met our expectations but missed Street’s at 98% and 95% of full-year estimates. SIME declared a 4QFY24 DPS of 10 sen, bringing FY24 DPS to 13 sen – meeting our DPS forecast.

• The motor business' 4QFY24 PBIT increased 32% QoQ to MYR238m, driven by stronger contributions from Malaysia (>2x due to dividends from BMW Malaysia) while revenue rose 6% QoQ. However, this was offset by a wider loss in China, which increased to MYR105m from MYR21m in 3QFY24, as revenue declined by 6% QoQ. Consequently, a one-off impairment of MYR229m related to the Chinese auto business was recorded during the quarter. Management expects additional impairments for the China auto business, albeit at a lower magnitude.

• Australasia posted strong industrial PBIT as usual, which made up the bulk (80%) of 4QFY24 industrial PBIT. This segment recorded a 22.7% YoY increase in FY24 PBIT, of which recent acquisitions Onsite Rental and Cavpower Group contributed 16.5% of the segment’s PBIT. As a result, margins improved from 6.3% in FY23 to 7.1% in FY24.

• UMW's 4QFY24 PBIT fell 56% QoQ due to a weaker performance in the equipment sub-segment following the sale of a 26% stake of the industrial equipment arm to Toyota and reduced forklift sales amid increased competition. UMW contributed MYR9.4bn (25%) to SIME's FY24 revenue, boosting its presence in the local auto market – Malaysia now accounts for 29% of its FY24 revenue, up from 16% in FY23.

• Outlook. We expect Australasia to drive growth for the industrial segment's revenue and profitability, with Cavpower's full-year contributions reflected in FY25. We remain cautious about the China motor and industrial units due to battery EV oversupply and weak infrastructure sentiment. In Malaysia, the motor segment is expected to remain strong, supported by new EV launches and full-year UMW contributions.

• We revised our FY25F-26F earnings by -4% post housekeeping adjustments. The lower MYR3.10 TP is inclusive of a 2% ESG discount. With the impending subsidy rationalisation, we think SIME is well positioned in the local auto market given its exposure to mass market brands under UMW (Perodua and Toyota) on top of its luxury brand offerings. Risks: Weaker-than-expected margins, softer-than-expected car sales across its markets, and a longer- than-expected downturn in China.

Source: RHB Research - 28 Aug 2024