KUALA LUMPUR (Feb 25): Analysts have maintained Sime Darby Bhd's (KL:SIME) earnings forecasts as they expect strong industrial segment earnings to offset any weakness in its automotive segment.

Analysts with Hong Leong Investment Bank (HLIB) retained their earnings forecasts for Sime despite its results for the first half ended Dec 31, 2024 (1HFY2025) coming in slightly below expectations and consensus.

"We expect Sime Darby to leverage on its strong industrial segment in FY2025, underpinned by its high RM4.8 billion order book," said HLIB.

The industrial segment earnings are projected to be sustained in 2HFY2025, thanks to the record high order book of RM4.8 billion as of December 2024.

The Australian market, comprising 56.1% of the order book, benefits from profitable commodity prices, while increased infrastructure projects and rising demand for power and energy equipment from data centres enhance the outstanding order book, said Hong Leong Investment Bank (HLIB).

Maybank Investment Bank stated that its motor division (MT) outlook remains subdued. Strong electric vehicle (EV) demand in Singapore is partially offset by intense competition in China. A mixed macroeconomic environment from slowing premium car demand in Malaysia and a lack of catalysts in Australasia was also flagged by the house.

TA Securities signaled a weaker outlook for Perodua and Toyota moving forward because the management reduced both target sales by 3.7% and 12% respectively.

There are now 12 'buy', six 'hold' and no 'sell' calls out of 18 research houses covering Sime. The average target price is RM2.75, according to Bloomberg, suggesting a potential return of up to 22.8% in the next 12 months from the last price.

"Challenging business conditions in China are likely to persist, including ongoing price wars. In Malaysia, demand for motor vehicles is expected to weaken due to the anticipated fuel subsidy rationalisation and the introduction of a high-value goods tax.

"Furthermore, the influx of China original equipment manufacturing (OEM) and competitive pricing may intensify market competition, further squeezing profit margins and limiting earnings growth," Public Investment Bank said and remain uncertain on the company outlook.

"Despite these headwinds, the robust performance of Industrial division in Australasia and Malaysia, as well as UMW, is expected to cushion the weakness in its China operations", the research house said.

At the time of writing on Tuesday, shares of Sime Darby were up one sen or 0.4% at RM2.27, giving the group a market capitalisation of RM15.47 billion. The counter is down 3.4% this year.

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