KUALA LUMPUR: Sime Darby Bhd's strong performance in Malaysia's motor and Australasia's industrial divisions are expected to cushion headwinds coming from China.

PublicInvest research said in its note, China as one of the group's key markets, continues to face headwinds and remains challenging amid prolonged downturn in property sector, sluggish export, weakening demand and overcapacity.

"The strong performance of the group's Malaysia Motor and Australasia Industrial is expected to cushion the weakness in its China operations. "The full exit from non-core healthcare business and the recent acquisitions of UMW Holdings Bhd, Onsite Rental Group Ltd and Cavpower Group should further expand its presence, broaden earnings and continue to support the Malaysia Motor and Australasia Industrial division performance," it said in a note.

For its second quarter ended Dec 31, 2023 (Q2FY24), Sime Darby's net profit surged to RM2.3 billion due to RM2 billion gain on the disposal of Ramsay Sime Darby Health Care (RSDH) in December. Excluding non-operating items, core net profit was still higher by 7.2 per cent year-on-year (YoY) at RM269 million largely due to better contribution from Australasia Industrial division.

The results were within PublicInvest and consensus' estimates, accounting for 45.5 per cent and 47.9 per cent of full-year estimates respectively.

"We raise financial year 2024 (FY24)/25/26 estimates by an average of 20 per cent to account for earnings accretion from UMW acquisition which was completed in Feb 2024," it added.

The firm maintained a 'Neutral' call on the stock with a higher target price of RM2.73 from RM2.41 previously.