CGSI Research said the industrial division remained the group's bright spot.
PETALING JAYA: Sime Darby Bhd
’s industrial business, especially in Australia, will continue to be the star performer amid the intensifying competition faced by the group in the motor segment.
The industrial division, which is a distributor for construction equipment maker Caterpillar, was a key contributor to Sime Darby’s strong bottom line in the financial year ended June 30, 2024 (FY24).
Core net profit rose 8% year-on-year (y-o-y) to RM1.41bil, after one-off adjustments.
Strong contributions from the industrial segment and the UMW division acquired in December 2023 were able to more than offset the China motor business registering over RM100mil in losses due to stiff competition.
CGS International (CGSI) Research said the industrial division remained its bright spot, with the Australian order book staying strong, buoyed by stable demand from the mining sector and new growth prospects linked to the energy transition.
“This is also supported by the robust order book valued at RM4.4bil as of June 2024.
“Significant growth is anticipated from China and Singapore, with additional opportunities arising from data centre and infrastructure projects in Malaysia.
“Data centre projects represented less than 35% of its Malaysia order book,” the research house said in a note.
Hong Leong Investment Bank (HLIB) Research expects Sime Darby to continue to leverage onto the strong momentum of its industrial segment, driven by mining in Australia for FY25.
“Expect earnings to sustain in FY25, underpinned by its high order book of RM4.34bil while commodities prices remain high, with margins expected to sustain on strong demand for maintenance and overhaul services,” it said.
On the motor segment, it opined that FY25 results may weaken, partly dragged by the continuous competitive China market conditions with heavy price discounting.In addition, sales may normalise in the Malaysian motor market after a strong FY24 showing and the Australia market may remain weak.
HLIB Research has cut its earnings forecast for FY25 and FY26 by 7.1% and 6.8%, respectively.
On the contrary, TA Research adjusted the earnings forecasts for FY25 and FY26 upward by 0.9% and 1.8%, respectively, after updating the FY24 earnings.
It also noted that Sime Darby’s fourth-quarter of FY24 results came in within expectations.
After excluding exceptional items, the core net profit declined by 20.4% y-o-y to RM375mil, despite a 41.4% increase in revenue. The weaker performance was primarily due to losses from the Motors Mainland China operations and reduced dividend income.
Post-briefing by Sime Darby, it said the China automotive market remains challenging, with heavy discounting being a key issue.
However, there are signs of rational behaviour among both auto dealers and manufacturers, as the rate of discounts has reduced.
“All in all, the timeline for a full recovery is still uncertain. Besides, in reviewing the business in China, the group plans to shut down several branches and is looking to phase out certain brands.
“Cost-saving measures are also implemented as part of this strategy.
“The automotive division in Malaysia is expected to have a strong year in 2024. However, with the entry of Chinese electric vehicles (EVs) into the market, competition is expected to intensify,” she said.
Meanwhile, CIMB Research said full-year contribution from UMW will drive stronger FY25 earnings for Sime Darby.
UMW made up 14% of Sime Darby’s revenue in FY24.
“The group expects to complete the divestment of Komatsu distributorship from UMW Heavy Equipment in the first quarter of FY25.
“We expect Perodua to maintain a healthy sales momentum in the second half of 2024 underpinned by healthy backlog orders, which stood at over 100,000 units.
“UMW-Toyota’s backlog orders fell from 23,000 units at end-March 2024 to 20,000 units at end-June 2024 amid stiff competition from Honda and new EV players,” the research house said.
