Sime Darby Bhd (Sime Darby) has a solid first quarter of the financial year (1QFY24), with stronger-than-expected performances across all segments, according to RHB Investment Bank (RHB IB).
In its Results Review note today (Nov 28), the research house maintains its BUY call, with new SOP TP of RM2.85 from RM2.50, an increase of 20%, c.6% FY24F (Jun) yield.
The research house lifts its estimates by 9 to 10% as its tweak its car ASPs in Malaysia, and car sales volumes here and in China.
“Our TP includes a 0% ESG premium/discount, which implies 14x CY24F P/E, which we believe is where this stock deserves to be traded at, for example, higher than historical mean of 11.6x P/E.
“This is considering that the proposed acquisition of UMW (UMWH, NEUTRAL, TP: MYR5) will be earnings accretive to the group, in our view.”
Kenanga said that Sime Darby’s 1QFY24 net profit of MYR325 million beat its forecasts as well as street’s full-year FY24 forecasts at 27%.
“Driven by EV sales, Sime Darby’s Malaysia and China motor segments should remain resilient despite macroeconomic headwinds. Its Australasia industrial segment’s contribution continues to grow following its recent acquisitions.
“It also increase the industrial division’s contributions for Australasia, supported by Onsite Rental and Cavpower,” it added.
Kenanga said Sime Darby continues to expect the industrial division to chart robust numbers, supported by the anticipated Cavpower earnings on top of contributions from Onsite Rental.
“We remain cautious on the China motor and industrial units given the relatively weak economic outlook there. We estimate the group’s car sales will soften 4% YoY in China, mainly weighed by the continuing stiff price war from Chinese marques.
“That said, we expect margins to gradually recover. In Malaysia, we expect the motor segment to remain resilient, driven by a series of new EV launches.”
The risks to RHB IB’s call include weaker-than-expected margins, softer-than-expected car sales across its markets, and a longer-than-expected downturn in China.
