The group attributed the marginal reduction to lower profit from its automotive business in China, and higher finance costs during the reported period.
“However, this was partly offset by higher profit from the group’s industrial business,” the group said in a statement today.
The drop in net profit came despite an increase in the group’s revenue to RM11.53 billion, a 9.5% increase from Q3 FY2022’s RM10.52 billion.
An interim dividend of 3 sen per share amounting to RM 204 million for the financial year ending June 30, 2023 was declared on February 23, 2023 and paid by way of cash on March 31, 2023.
Particularly standing out is the group’s industrial division, whose profit before interest and tax (PBIT) rose 57.3% to RM236 million in Q3 FY2023 due to higher profit from Australasia.
“This was largely attributed to higher parts revenue, which was supported by parts price increase and growing demand for maintenance of mining equipment,” the statement said.
In contrast to the industrial division, the group’s motors segment suffered a 28.3% decline in PBIT at RM170 million due to lower profits from China, according to the statement.
The impact, however, was partially mitigated by strong results from the group’s Malaysia and Singapore operations.
Research houses unalarmed
RHB Investment Bank Bhd has maintained its “neutral” stance on Sime Darby with a 10% lower target price of RM2.10 from RM2.35.
“Unsurprisingly, Sime Darby’s China motor margins remained soft while the Australasia industrial segment continued posting revenue and margin growth,” RHB Investment said in a note.
The research house also projected that the group’s China motors and industrial segments will slowly recover, and that the Australia industrial segment will support the group’s earnings.
“We keep our call as we think the challenges in China and Australasia’s resilience have been priced in,” it added.
Public Investment Bank Bhd too has retained its “neutral” call on Sime Darby with an unchanged target price of RM2.37.
“The results were below both our and consensus expectations, accounting for 58.6% and 64.7% of full-year estimates respectively.
“We keep our estimates unchanged, however, on expectations of stronger contribution from its China operations in the coming quarters underpinned by the country’s latest stimulus plans for infrastructure development as well as measures to stabilise automobile consumption,” Public Investment said.
CGS-CIMB Securities has maintained its “hold” rating at RM2.11 with a 7% lower target price of RM2.18 from RM2.35, saying that results in its cumulative nine-month period (9M FY2023) were below expectations.
“We cut our FY2023-2025 forecast EPS (earnings per share) estimates by 7%-10% as we reduce our margin assumptions for its motor business,” it said.
AmInvestment Bank Bhd, on the other hand, has downgraded its call on the group from “buy” to “hold” with a lower fair value of RM2.21 from RM2.58 previously.
“Our new SOP-based fair value is now premised on a lower target P/E of 8x from 12x previously assigned to its motor segment,” AmInvest said, adding that the group’s valuation is 20% lower than peers such as UMW Holdings Bhd’s 10x to reflect subdued situation in China which is Sime Darby’s biggest motor market.
Meanwhile, Kenanga Investment Bank Bhd has reduced Sime Darby’s target price by 8% to RM2.40 from RM2.60, while maintaining its “outperform” call.
Kenanga said that the group’s 9M FY2023 results had disappointed and thus, it had downgraded its FY2023-2024F net profit forecasts by 13% and 19% respectively.
As at 4pm, Sime Darby’s share price was 3 sen or 1.4% lower at RM2.08, giving it a market capitalisation of RM 14.31 billion.