SIME Earnings Preview | A Positive Earnings Surprise in Store for Sime?

Consensus estimates for Sime’s FY26Q1 are as follows:

– Revenue: Expected to reach RM18.11 billion, down 0.84% year-on-year.

– Adjusted Net Income: Estimated at RM360.5 million, a decline of 54.94% compared to the same period last year.

Sime is a multinational conglomerate with over 30,000 employees and operations spanning over 10 countries. Its core business units include Sime Industrial, Sime Motors, and Sime UMW. Last quarter, the group delivered a strong performance: although revenue dipped 5.5% year-on-year to RM17.76 billion, net profit surged 757.3% to RM763 million. Following the earnings release, the stock rallied sharply, gaining over 23% in just three trading days, driven largely by upbeat prospects in the industrial segment and steady earnings from Sime UMW.

According to Affin Hwang IB analyst Afifah Ishak, Sime’s Malaysian automotive unit is expected to maintain year-on-year growth, supported by robust demand for BYD models, which saw a 99% surge in third-quarter sales following aggressive new model launches. This growth is likely to help offset a 16.3% decline in BMW sales. However, she cautioned that the increasing share of mass-market BYD models may negatively impact the product mix and lower the average selling price. While UMW Toyota—a joint venture—posted a modest 3.3% increase in sales, indicating steady demand, heightened competition and extensive promotional activities could weigh on margins in the near future.

Sime’s Malaysian automotive arm, Sime UMW, is projected to maintain strong performance, supported by seasonal strength in Perodua and Toyota sales, a recovery in manufacturing, and a rebound in the equipment segment. Still, analysts warn that rising competition and ongoing promotional efforts may pressure profitability going forward.

The industrial division’s robust performance last quarter was supported by strong commodity demand. With stabilizing tariffs, a steadying market environment, and continued strength in commodity markets, this segment is expected to deliver solid revenue and profit in the current quarter. Hong Leong Investment Bank (HLIB) noted, “Sime is set to leverage the strong momentum in its industrial business in FY2026, supported by demand from mining clients in Australia.” Moreover, the recent approval of higher parts pricing by Caterpillar, effective July 2025, is anticipated to help the segment achieve a record-high margin in 1QFY26. This improvement will be aided by these price increases and lower inventory costs.

Additionally, over a 10-year equipment lifecycle, after-sales services can generate approximately 1.2 times the initial equipment sales value—typically at higher margins than the equipment sales themselves. This trend supports a growing mix of after-sales revenue in the coming years, which should further enhance group profitability. However, a stronger Malaysian Ringgit could negatively impact Australian revenue when converted into local currency. Investors will closely monitor the actual margin improvement in Sime’s industrial operations and the company’s outlook on sustained demand from the Australian mining sector.

HLIB remains relatively optimistic about Sime’s prospects in FY2026, citing strong demand for power systems in Malaysia, a rebound in Australian business margins, and easing competitive pressures in the Chinese automotive market. The research house also expects improved contributions from UMW in the coming quarters. HLIB forecasts a maintained dividend of RM0.13 per share for FY2026, offering a dividend yield of around 6%. It has assigned a “Buy” rating on the stock with a target price of RM2.50.