Sime Darby’s motor division to experience slower revenue growth
KUALA LUMPUR: In line with the softening consumer sentiment and automotive market in Malaysia, Sime Darby Bhd’s (Sime Darby) motor division has been projected by the research arm of Public Investment Bank Bhd (PublicInvest Research) to experience slower revenue growth and a slight decline in profit before interest and tax (PBIT) margin for forecasted financial years 20182020 (FY18F-20F).
According to PublicInvest Research in a company update, in terms of topline breakdown, Sime Darby’s motor and industrial divisions are the main revenue contributors to the group at 66 per cent and 33 per cent respectively.
“Geographically, China contributes 37 per cent to group revenue, followed by Australasia at 29 per cent, Malaysia at 15 per cent, Singapore at 14 per cent and other countries for the remaining five per cent,” it said.
Going forward, PublicInvest Research projected a three per cent to five per cent overall growth, with an average of 10.4 per cent growth in Sime Darby’s industrial division which the research arm expected to be driven by improvement in the mining industry in Australia.
The research arm also expected Sime Darby to benefit from higher demand from construction activities due to the Belt & Road initiatives in China.
“Meanwhile, we expect slower growth in its motor division, with an average of 1.8 per cent between FY18F-20F due to softening consumer sentiment in Malaysia as well as stiff competition in China.”
PublicInvest Research highlighted that for the bottomline, motors division contributes the highest to the group’s profit before interest and tax (PBIT), with 48 per cent from BMW alone.
The research arm noted that the second largest earnings contributor is industrial with 24 per cent -excluding one-off impairment of RM214 million on the Bucyrus goodwill and distribution rights as well as provision for onerous contracts of RM43 million for the operations in Australasia , followed by logistics and others, standing at five per cent and seven per cent respectively.
Going forward, PublicInvest Research projected a four-year compound annual growth rate (CAGR) of 2.9 per cent for FY18F20F.
The research arm forecasted an average of 22.8 per cent core PBIT growth in Sime Darby’s industrial division for FY18F-20F, supported by improvements in mining and construction activities in Australia and China region respectively.
“However, for motor division, we expect a slight decline in its PBIT margin at an average of three per cent due to softening of the automotive market in Malaysia, recent revision of zero vehicle growth rate and limited certificate of entitlement in Singapore, as well as stiff competition in the luxury vehicle market in China.”
On dividends, PublicInvest Research believed Sime Darby will maintain the grouop’s dividend payout of at least 50 per cent profit after tax and minority interest (PATAMI) going forward.
The research arm’s forecast assumed a conservative 50 per cent payout for FY18F-FY20F, which translates to an average dividend yield of 2.1 per cent.