This article first appeared in The Edge Financial Daily on February 26, 2018

Sime Darby Bhd
(Feb 23, RM2.80)
Maintain neutral with a target price (TP) of RM2.40: Sime Darby Bhd’s reported lower net profit of RM320 million for the first half of its financial year 2018 (1HFY18), down 18.4% year-on-year (y-o-y) was mainly due to higher losses incurred in its Vietnam motor operation but offset by its higher industrial division.

Excluding one-off items, its core net profit of RM335 million accounted for 43.3% of our full-year estimates. A first interim dividend of two sen was declared for the quarter. We maintain our “neutral” stance with a sum-of-parts-based TP of RM2.40.

For the second quarter of FY18, the group’s sales rose 9% y-o-y to RM8.8 billion mainly attributed to the stronger sales contribution from the industrial segment, partly offset by weaker sales from the motor division.

For the industrial segment, the company posted stronger sales mainly due to higher equipment deliveries and product support sales to the construction and mining sectors in Australia and China. The motor division posted lower sales, which declined by 3.3% y-o-y. Logistics posted higher revenue due to an increase in throughputs at Weifang Port.

Stripping out exceptional items, the group’s second quarter of FY18 core net profit declined to RM133 million as the motor segment weakened due to higher losses incurred by Vietnam of RM109 million compared with a profit of RM5 million in the previous corresponding period. Excluding the Vietnam operations, however, profit for the quarter slightly increased by 0.8% y-o-y due to higher profit from China and Hong Kong but partially offset by lower profit from the Malaysia and Singapore operations.

Nevertheless, profit from industrial and logistics segments has cushioned the impact of a weaker performance at the motor division. The higher share of profit from Ramsay Sime Darby Healthcare joint venture was mainly due to higher revenue from the Malaysian operations. — PublicInvest Research, Feb 23