1HFY6/22 results in line
Maintain BUY and MYR2.70 TP
1HFYE6/22 core net profit of MYR581m (-5% YoY) made up 46% of our FY estimate and we expect a stronger 2H ahead, led by the revival at its Australian industrial ops. Sime is leveraged to ride on the commodity cycle, infrastructure capex spending, consumer recovery and the EV agenda. It offers earnings growth and dividend yield upside. Our TP is SOP-based.
Snapshot of 1HFY22; declared 4 sen interim DPS
Sime reported softer YoY core net profit (-5%) in 1HFY6/22, mainly on lower core PBIT at its industrial ops (-18%), which negated the improved operations elsewhere (autos, logistics). The China/ Australasia industrial ops posted a 58%/ 5% YoY drop in core PBIT. The former was disrupted by the slowdown in construction activities, and lower sales, margins and utilisation rates from its rental business while the latter was affected by higher opex/ lower margins. Salmon Earthmoving (acquired in Oct 2021) contributed MYR7m. In the auto division, the Greater China market continued to drive growth (50% of motor’s PBIT), fuelled by resilient sales from the super luxury segment despite supply constraint issues.
Commodity, infrastructure and EV push growth
We expect stronger 2H performance ahead, as it capitalises on the commodity cycle and infrastructure capex plays. Sime will continue to benefit from its motor (resilient orders, higher margins) & industrial
(margins recovery, higher order backlog, Australia) ops, as it gains strength post pandemic. It is readily embracing the EV transition agenda, with a pipeline of EV models. We do not rule out Sime expanding its CKD assembly operations and sign up new franchises to grow its motor ops.
To continue to unlock values, ESG updates
We remain positive on Sime’s concerted effort to divest its non-core assets, monetise and recycle its capital effectively. Constantly disposing the MVV land (8,036 acres) is a positive. Meanwhile, in its ESG framework update, Sime targets to: (i) reduce emissions (Scope 1 & 2) by 30% by 2030, (ii) invest MYR250m (minimum) in ESG innovations by 2025 and (iii) have >50% of its products in portfolio be more energy efficient by 2025.