Sime Darby to leverage industrial segment, UMW purchase in FY24

KUALA LUMPUR: Following an expectation-beating performance in the first quarter of financial year 2024 (FY24), Sime Darby Bhd is expected to leverage the high orderbook in its industrial segment while reaping the benefits of its acquisition of UMW Holdings Bhd.

In 1QFY24, Sime Darby’s core profit after tax and minority interest (Patmi) was RM377mil, a 42.8% increase year-on-year, which beat market expectations.

“The results were mainly driven by a strong showing from the industrial segment on new contributions from Onsite and Cavpower, as well as stronger margins from aftersales services,” said Hong Leong Investment Bank (HLIB) Research in a results note.

Moving forward, Sime Darby’s industrial orderbook of RM4.5bil is expected to underpin earnings in FY24, said the research firm.

Meanwhile, the group’s motor division will be mainly supported by the strong Malaysian market, driven by the higher order backlogs and new electric vehicle (EV) contributions, although the Malaysian market is expected to soften in the coming quarters.

HLIB said the China market remains highly competitive due to ongoing discounting activities, resulting in deteriorated margins. The group continues to leverage the principal’s new EV models to sustain sales volume, in line with the governments’ initiative to promote EV adoption.

The acquisition of the 61.2% stake in UMW from Permodalan Nasional Bhd and the subsequent mandatory general offer to minority shareholders is expected to be completed in 3QFY24, which is expected to further support earnings growth of the motor segment.

HLIB maintained its “buy” recommendation with a higher target price of RM2.88 (from RM2.60), based on an unchanged 15% discount to sum-of-parts of RM3.38.

“Sime Darby will continue to leverage the strong momentum of its Industrial segment, driven by mining in Australia in FY24.

“We also expect a continued decent dividend yield of 5.9% for FY24-26,” it said.