PETALING JAYA: Affin Hwang Investment Bank has cut its financial year ending June 30, 2025 (FY25) to FY27 core earnings per share (EPS) estimates by 5% to 9% for Sime Darby Bhd
, after revising its forecasts downward across the diversified group’s key markets.
It said as Sime Darby’s largest profit contributor, its Australasian industrial division’s Caterpillar-focused operations remain tightly coupled to Australia’s coal export economy.
“With export consumption accounting for 80% of production, Australia’s coal production faces amplified sensitivity to international price swings and policy changes.
“However, as the International Energy Agency (IEA) expects Australian met coal production to decline, we forecast Sime Darby’s industrial profit before tax across Australasia operations to fall by 2% to 18% in FY25-FY27 due to weaker demand for mining equipment.
“Besides, IEA’s projected 5% production decline (eight million tonnes reduction by 2027) could potentially drive a 3% to 5% order-book contraction for Sime Darby’s Caterpillar distribution business in Australia,” the research house added.
Affin Hwang also said it remains tough to see a positive catalyst for Sime Darby’s China operations with both the motors and industrial segments “looking far from a meaningful” earnings recovery.
While Sime Darby remains optimistic about a long-term rebound in China earnings, the research house said it is far more sceptical, given the multiple headwinds the company faces.
This includes a structural shift in Chinese consumers’ preference over vehicle purchases and a continued slowdown in the construction industry, which collectively cast doubt on Sime Darby’s ability to turn things around anytime soon, said Affin Hwang.
The research house said it was cutting its FY25-FY27 core EPS estimates downward across the group’s key markets – Australasia, China, and Malaysia due to the aforementioned challenges.
“We downgrade Sime Darby to ‘sell’ (from hold) with a lower target price of RM1.86 (from RM2.26) following our FY25-FY27 core EPS revisions and reduction in target price earnings to seven times for both motors (from 10 times) and UMW Holdings Bhd (from eight times ) to reflect the weakening sentiment across Sime Darby’s automotive operations in both domestic and international markets.”
For the second quarter ended Dec 31, 2024, Sime Darby registered a net profit of RM305mil as compared to a net profit of RM2.29bil in the year-ago quarter, which had benefited from a RM2bil gain on the disposal of Ramsay Sime Darby Health Care in the same quarter in 2023.
Stripping out the gain on disposal, the group’s core net profit of RM305mil was a 13.4% improvement from RM269mil in the year-ago quarter.
Revenue during the quarter, meanwhile, was up 14.2% to RM17.73bil from RM15.52bil in the previous comparative quarter.
For the six-month period, Sime Darby recorded a net profit of RM1.11bil compared to RM2.88bil in the previous corresponding period, while revenue rose to RM35.99bil from RM29.5bil in the previous corresponding period.
According to the group, its performance was mainly driven by the UMW division, which contributed RM272mil in profit before interest and tax (PBIT) due to higher sales of Perodua vehicles.
The industrial division experienced a marginal PBIT decrease of 4% to RM337mil.
“The division’s Australasia operations recorded lower profits mainly due to the impact of the reduction in parts prices as a result of the weaker Australian dollar versus the US dollar.
“But higher contributions from the Malaysia and Singapore operations helped soften the impact,” it said.
