KUALA LUMPUR: Moving forward into the second half of its financial year (2HFY24), Sime Darby Bhd
is expected to continue to leverage its industrial segment as well as the consolidation of UMW Holdings Bhd.
Hong Leong Investment Bank (HLIB) Research said in a post-results update that earnings can be expected to be sustained in FY24, underpinned by the high orderbook of RM4.2bil.
"66% of its order book is attributed to the Australia market (mainly mining sector) due to the still highly profitable coal prices, while margins are expected to sustain on strong demand for maintenance and overhaul services.
"Demand for construction equipment may see some recovery trend as Malaysia and Singapore starts implementing mega infrastructure projects," said the research firm.
Meanwhile, HLIB said Sime Darby's earnings growth will be further supported once it fully consolidates UMW from 3QFY24 onwards.
Over the near-term UMW will be managed as an independent business unit.
HLIB added that Sime Darby's motors segment will be mainly supported by strong Malaysia and Singapore markets, driven by electric vehicle (EV) contributions.
It said the China market remains highly competitive due to the ongoing discounting activities, resulting in deteriorated margins causing losses in 2QFY24.
"Sime will continue to leverage onto principal’s new EV models to sustain sales volume, in line with the governments’ initiative to promote EV adoption," it said.
In its results announcement yesterday, Sime Darby said 2QFY24 core profit after tax and minority interests (Patmi) stood at RM305mil, which brought Patmi in 1HFY24 to RM682mil, a 10.1% year-on-year improvement.
The group declared a three sen dividend per share, going ex on March 7, 2024.
HLIB said the improvement was mainly owing to a stronger contribution from its Australian industrial segments, post-acquisition of Onsite, which resulted in higher equipment sales volume and aftersales maintenance activities, combined with higher motor sales volume.
The research firm recommended a "buy" on Sime Darby with an unchanged target price of RM2.88. It expects a continued dividend yield of 5.3% for FY24-26.
