Sime Darby Bhd has posted an 18% increase in net profit to RM252.5mil for its first quarter ended Sept 30 from RM214.1mil in the previous corresponding period, with the better-than-expected performance of its plantation and property divisions helping to offset a poorer showing by its heavy equipment and motor vehicle sectors.
Group revenue for the quarter was slightly down at RM3.58bil compared with RM3.66bil a year ago. But profit before tax improved to RM368.3mil versus RM337.6mil previously, lifting earnings per share to 10.9 sen from 9.2 sen.
Analysts tracking Sime Darby said its first-quarter results were in line with or slightly above expectations, but that the improvement in its earnings stemmed mainly from exceptional items. If these were stripped out, there would have been a year-on-year decline in net profit of some 4% to 14%.
Sime Darby reported a gain of RM70.3mil from the disposal of associated and subsidiary companies for the quarter under review.
On a segmental basis, plantations contributed RM152.6mil of the group's pre-tax profit, property RM76mil, heavy equipment and motor vehicle distribution, both about RM48mil, energy RM52mil, and general trading, services and others, RM4mil.
Analysts think Sime Darby should benefit in the next six months from stronger crude palm oil prices, which have surged above RM1,800 per tonne.
But the company's heavy equipment and motor vehicle divisions, which have been rather erratic in their performance lately, are seen as cause for concern.
“A big concern is auto sales in China which have come off, as well as heavy equipment sales in Australia,” an analyst said, noting that the latter contributed about 12% to 15% to group profits.
He said while there could be a turnaround in auto sales, it was less likely to happen in heavy equipment sales given the strong Australian dollar.
Another analyst believes that both divisions could surprise in the next quarter on improved consumer sentiment amid stronger regional growth.
Sime Darby said it was optimistic its overall results for the year would remain satisfactory given the measures taken to strengthen its businesses and strong palm product prices. Reuters Estimates has a consensus net profit forecast of RM854mil for Sime Darby's full year ending June 30, 2004.
Analysts are divided on the stock.
One has a “buy” call, based on the company's blue-chip status.
“It's a big laggard with attractive valuations and is also a 'safe stock' with high dividend yields,” she said.
Another, citing the company's declining return on equity, has a “reduce” call on the stock.
Having acquired a stake in China Water Co Ltd, he said, Sime Darby had indicated at an analysts' briefing its intention to continue investing in utilities in China, but he was unconvinced that such businesses would offer consistently strong earnings growth.
Among the Sime Darby group subsidiaries, Sime UEP Properties Bhd registered a higher net profit of RM39.7mil for the July–September quarter on a lower turnover of RM103.6mil.
Its earnings per share were 9.8 sen for the period.
Tractors Malaysia Holdings Bhd made a lower net profit of RM16.5mil despite higher revenues of RM415.3mil for the same period. Its earnings per share consequently were lower at 5.1 sen versus 6 sen a year ago.
Sime Engineering Services Bhd, posting its first result for the group, achieved a net profit of RM4.2mil on revenues of RM75.2mil for the period Aug 15 to Sept 30. Earnings per share amounted to 0.8 sen.
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