KUALA LUMPUR: Sime Darby Bhd's outlook remains uncertain as challenging business conditions in China persist, with price wars likely to continue.
Public Investment Bank Bhd (PublicInvest) said in Malaysia, demand for motor vehicles is expected to soften due to the expected fuel subsidy rationalisation and the introduction of a high-value goods tax.
"Additionally, the influx of China original equipment manufacturers (OEMs) and competitive pricing may intensify market competition, further squeezing profit margins and limiting earnings growth.
"Despite these headwinds, the robust performance of the industrial division in Australasia, Malaysia, and Singapore is expected to cushion the weakness in its China operations," it said in a note.
As such, the firm made no changes to its earnings forecasts and maintained its "Neutral" call on the group, with an unchanged target price (TP) of RM2.45.
Meanwhile, PublicInvest said Sime Darby's first quarter ended Sept 30, 2024 (1Q25) results were within both the firm's and consensus' estimates, accounting for 25 per cent and 22.5 per cent of full-year forecasts, respectively.
The group's 1Q25 core net profit improved by 17.2 per cent to RM354 million, due to profit contribution from the UMW divisions.
The newly acquired UMW division, where core profit before interest and tax (PBIT) increased by 25.1 per cent quarter-on-quarter (QoQ) to RM214 million for the quarter, in line with higher vehicle sales.
The group's 1Q25 revenue increased by 30.6 per cent year-on-year (YoY) to RM18.3 billion, driven by higher sales in the industrial divisions and contributions from the UMW division.
Revenue for the industrial division rose by 9.4 per cent YoY to RM5.2 billion, mainly due to increased sales of product support and mining equipment in Australia.
For the newly acquired UMW division, revenue improved by 6.4 per cent QoQ to RM4.4 billion, primarily due to higher motor vehicle sales from Perodua, which recorded 89,192 units during the quarter (1Q24: 87,917 units).
This was partly offset by a lower contribution from the motors division, where revenue declined by 5.9 per cent YoY to RM8.7 billion, attributed to challenging operating conditions for all markets except Singapore.