Aggressive price war in China to affect Sime Darby’s car sales

RHB Research said Sime Darby's Malaysia motor segment is expected to remain resilient, driven by a series of new EV launches.

PETALING JAYA: Analysts are mostly upbeat about Sime Darby Bhd’s prospects for the financial year 2024 (FY24).

According to RHB Research, the group’s latest core profit of RM325mil in the first quarter of FY24 (1Q24) has beaten both its and consensus expectations at 27% of full year FY24 forecasts.

This was due to the stronger-than-expected performances across all segments, it added.

“Driven by the electric vehicle (EV) sales, Sime Darby’s Malaysia and China motor segments should remain resilient despite macroeconomic headwinds,” said RHB Research in a note to clients yesterday.

It noted that contribution from the group’s Australasia industrial segment continued to grow following its recent acquisitions. RHB Research said: “We continue to expect the industrial division to chart robust numbers, supported by the anticipated Cavpower earnings on top of contributions from Onsite Rental.”

However, the brokerage firm remained cautious on Sime Darby’s China motor and industrial units given the relatively weak economic outlook there.

“We estimate Sime Darby’s car sales will soften 4% year-on-year (y-o-y) in China, mainly weighed by the continuing stiff price war from Chinese marques,” said the research house.

RHB Research expects margins to gradually recover.

On the local front, the brokerage firm said the motor segment is expected to remain resilient, driven by a series of new EV launches.

“We lift estimates by 9% to 10% as we tweak our car average selling prices in Malaysia, and car sales volumes here and in China. We also increase the industrial division’s contributions for Australasia, supported by Onsite Rental and Cavpower,” it added.

Hence, RHB Research has kept a “buy” call on Sime Darby with a higher target price (TP) of RM2.85 as it rolled its valuation to calendar year 2024.

Meanwhile, TA Research said Sime Darby’s 1Q24 results came in within its expectation.

The research house, which maintained its earnings forecasts on the group, has a “hold” call on the stock with an unchanged TP of RM2.50.

On the group’s outlook, the research house said: “We expect automotive sales in China to continue to be impacted by a brutal price war, especially in EVs.

“The situation will be exacerbated by inflation and higher interest rates.”

TA Research expects more aggressive price cuts in 2024 to lure buyers.

Sime Darby’s management expects price wars to continue to affect margins in a saturated market, it added.

The research house noted the group’s industrial division is expected to perform well, premised on the backlog of orders in Australia from the mining and construction sectors.

“Sime Darby’s management expects the market volume for industrial equipment in China is likely to be subdued due to weaker consumer confidence, sluggish global demand, and issues in the property sector,” said TA Research.

Meanwhile, the acquisition of UMW Holdings Bhd is expected to be completed by the fourth quarter of this year, and the mandatory general offer (MGO) by the first quarter of next year.

Subsequently, the proposed delisting of UMW will also be taking place, the research house noted.

Hong Leong Investment Bank Research, meanwhile, expects Sime Darby to leverage on its industrial segment in FY24 driven by mining in Australia, underpinned by its high RM4.5bil order book, as well as the consolidation of UMW.

The research house said some 70.2% of the group’s order book is attributed to the Australian market mainly the mining sector due to the still highly profitable coal prices, while margins are expected to sustain on strong demand for maintenance and overhaul services.

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