HLIB Research said the group’s China motor segment has been affected by price discounts amid high inventory levels.
PETALING JAYA: Sime Darby Bhd
’s motor business in China is expected to continue facing headwinds, according to Hong Leong Investment Bank (HLIB) Research.
The research house, which had attended a management update with the company, said the group’s China motor segment has been affected by price discounts amid high inventory levels.
Consumer demand there has also seen a slowdown and while the heavy discounting will drive up sales volume, it will also mean that margins will be relatively thin.
However, HLIB Research noted that the situation could improve towards year-end or early 2024.
“On a brighter note, motor vehicle demand in Malaysia, Singapore and Australia remains encouraging with sustained margins,” HLIB Research said.
It said the company is not overly concerned with Tesla’s presence in the Malaysian auto market, noting that Sime Darby offered a wide range of original equipment manufacturers (OEMs) at various price points with after-sales service support to the market.
Meanwhile, Sime Darby’s industrial segment remains strong, especially in Australia.
The research house noted that demand for mining heavy equipment remains robust in its largest Australian market segment, underpinned by the highly profitable metallurgical coal prices at US$220-US$250 (RM1,000 to RM1,139) per tonne.
“Its latest order book at the end of March 2023 was sustained at a record high of RM3.3bil (out of the group’s total RM4.7bil order book).
“The Malaysian market has seen some pick-up in order book since end-December 2022, but management cautioned the market here remains moderate,” said HLIB Research.
It also noted that the China market remained slow and highly competitive with other major domestic OEMs.
HLIB Research maintained its “buy call” on Sime Darby with an unchanged target price of RM2.70 based on a 10% discount to its sum-of-parts.
“Sime Darby will continue to leverage on the strong momentum of its industrial segment, driven by mining in Australia. We also expect a continued decent dividend yield of 5.5% to 6.4% for the financial year 2023 (FY23) to FY25,” it said.
In its third quarter, Sime Darby’s net profit was marginally lower at RM240mil as compared to RM244mil in the same period last year. Its earnings per share for the quarter was 3.5 sen, down from 3.6 sen in the previous comparative quarter.
