KUALA LUMPUR: CIMB Equities Research is retaining its Hold recommendation for Sime Darby with an unchanged sum-of-parts based target price of RM2.50. The stock offers a decent FY19-20F yield of 3.8%-4.0%.
The research house said on Friday Sime Darby’s 1HFY6/19 core net profit was in line at 44% of its and consensus’ FY19F.
“Core net profit grew 26% on-year in 1HFY19, driven by stronger earnings from its industrial division on the back of robust mining activity recovery in Australia,” it said.
Sime Darby registered a 10.2% on-quarter core net profit growth in 2QFY19 to RM212mil, after excluding a RM129mil one-off deferred tax credit arising from the change in Real Property Gains Tax (RPGT) rate, an RM18mil gain on disposal of properties and a RM58 fair value loss on investment assets in Australia.
Overall, the group attributed the stronger earnings to higher contributions from the industrial division.
Sime Darby’s 1HFY6/19 core net profit grew 26% on-year, driven by higher contributions from the industrial and healthcare divisions. The industrial division posted a 78% on-year core PBIT growth due to higher equipment delivery and product support sales in Australia and China on the back of an uptick in the mining cycle.
The healthcare division posted a 20% on-year growth in core PBIT, driven by higher revenues in Malaysia and Indonesia.
The motor division posted a 6% on-year revenue growth in 1HFY19 on higher sales volume in China (+19%) and Malaysia (+8%), following new model launches, such as BMW 5-series and X3.
Despite higher sales, 1HFY19 core PBIT for the motor division fell 16% on-year due to on-going margin pressure on the back of competitive discounting, especially in China and Singapore.
“Nevertheless, the group expects improving margins in the motor division in 2019 driven by upcoming new model launches such as BMW 3-series and X5.
“We expect stronger industrial earnings in FY6/19F, driven by decent replenishment of its order book, which stood at RM2.5bil as of December 2018 (RM2.2bil in December 2017), thanks to strong equipment and after-sales service demand in Australia.
“Moreover, the Mineral Council of Australia projects a respectable 2.3% annual growth in global coal demand from 275Mt in 2017 to 372Mt in 2030. Hence, we believe this will help to drive resilient demand growth for mining equipment and after-sales services,” it said.
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