Sime Darby’s industrial segment to see better recovery from higher orderbook
KUALA LUMPUR: Sime Darby Bhd (Sime Darby) industrial segment is expected to record better recovery ahead, based on its higher orderbook which is up 18 per cent, analysts observed.
In a report, the research team at Kenanga Investment Bank Bhd (Kenanga Research) noted that Sime Darby’s first half of the financial year 2021 (1HFY21) core net profit, excluding its one-off Tesco disposal gain of RM294 million, grew stronger (up 13 per cent) than revenue (up 12 per cent), mainly due to lower finance costs from lower average borrowings (down 28 er cent), and lower effective tax rate at 22.1 per cent (1HFY20: 27.3 per cent) from reversal provision in investments.
In terms of segments, the strong CNP growth stemmed mainly from stronger Motor Vehicles profit contribution (up 82 per cent) where most of the profit came from the Greater China operation (up 94 per cent) attributable to strong luxury vehicle sales in China (up 27 per cent) coupled with higher profit contribution from the New Sydney Dealerships (up 71 per cent), and earnings turnaround for Singapore and Thailand regions.
However, it pointed out that these were netted off by lower contribution from industrials profit contribution (down 18 per cent) due to lower equipment deliveries and parts sales in Australia following the fall in coal prices and peak sales period in 4QFY20, and logistics profit contribution (down 15 per cent) due to decline in bulk cargo throughput mainly on stiff competition. Industrials orderbook is at RM2,668 million (up 18 per cent) which fluctuates based on work-order.
“Overall, motor vehicles sales stayed on a strong recovery path despite minor setback in global supply chain, while industrial segment inspired a better recovery ahead with higher order-book at RM2.7 billion (up 18 per cent),” it opined.
On its outlook, Kenanga Research noted that Sime Darby said most of the group’s operations are in countries/ territories that are not subject to significant movement restrictions and the recovery in motor vehicle sales has generally been strong.
“Motor vehicles sales continued to be on strong recovery path despite minor setback in global supply chain that may limit sales as there may not be sufficient inventories for sale for certain new models which had been the case for the drop in units assembled (down 35 per cent yo-y).
“Increased infrastructure spending from fiscal stimulus measures by various countries would support equipment sales for the industrial division.
Its port operation continued to face competition from other ports especially with the Chinese government rationalising ports operations to create a larger port entity,” it added.
Overall, Kenanga Research upgraded its call on the stock to ‘outperform’ from ‘market perform’.