SIME: Cost Management Drives Strong Quarterly Results, Full-Year Profit Margins Under Pressure

The company announced its 4QFY25 results, which significantly exceeded market expectations, primarily driven by robust cost management and exceptional contributions. Core net profit for the quarter surged by 22.3% year-on-year to RM472 million, even as revenue experienced a 5.5% decline. Despite this strong quarterly performance, the cumulative core net profit for FY25 saw a 7.5% year-on-year decrease to RM1.3 billion, although revenue for the full year increased by 4.4%.

Performance Review

The stellar 4QFY25 performance was largely attributed to lower-than-expected finance costs and substantial contributions from UMW, following its full consolidation into the group’s financial results. This allowed the company to outperform despite a challenging operational landscape.

For the full fiscal year, the overall decline in core net profit to RM1.3 billion indicates persistent headwinds that impacted profitability across various segments, despite a modest increase in total revenue.

Segmental Highlights and Challenges

The Automotive Division faced significant challenges, with PBIT decreasing by 26.2% year-on-year in FY25 to RM431 million. This was primarily due to softer demand and contributions from key markets such as Malaysia and Australasia. Excluding disposal gains and other exceptional items, the core PBIT for the Automotive division contracted even more sharply, by 55.4% year-on-year, with total unit sales declining by 3.4% to 131,500 units.

Similarly, the Industrial Division reported a 9.6% year-on-year decline in PBIT to RM1.3 billion in FY25. This was mainly driven by weaker contributions from Australasia, impacted by lower parts pricing and an unfavorable AUD/MYR exchange rate. Profitability in China was also negatively affected by the slowdown in the construction sector.

In contrast, UMW delivered a strong performance, contributing RM959 million to PBIT in FY25, nearly doubling its contribution from the previous period, largely due to its full consolidation.

The group also declared a second interim dividend of 10.0 sen per share for the quarter, bringing the total dividends for FY25 to 14.0 sen per share, an increase from 13.0 sen per share in FY24.

Outlook and Analyst Insights

Analysts have revised FY26-27 earnings forecasts upward by 2.9%-5.6%, reflecting updated FY25 figures, lower finance costs, and anticipated higher contributions from both the Industrial and Motor divisions.

However, the outlook for the Motors Division remains challenging, characterized by continued pressure from oversupply and aggressive discounting in China, alongside economic weakness in Australia/New Zealand and softer demand in Malaysia. These headwinds are partially mitigated by the strength of its Perodua and Toyota franchises.

The Industrial Division also anticipates ongoing headwinds, including Forex translation losses, lingering cost impacts from earlier parts price reductions, and persistent weakness in China’s infrastructure spending and intense competition. Margins in the Industrial division are expected to recover in FY2026 as temporary parts price cuts are reversed and strong aftermarket demand persists in Australia, Malaysia, and Singapore. Despite this, China is expected to remain a weak spot.

The company also noted BYD’s plans to establish a plant in Malaysia, which could help mitigate the impact of CBU EV duty exemptions expiring after 2025 and enhance its long-term EV positioning, though details on capacity and timeline are yet to be disclosed.

Analyst Recommendation

TA Securities maintains its HOLD rating on the stock, with a revised target price of RM1.97 per share, based on a sum-of-parts (SOP) valuation.