The creation of Synergy Drive has been hailed as a masterstroke asit would create the world’s largest listed oil palm company. DatukAhmad Zubir Murshid spoke on the path forward for the group.
SYNERGY Drive Sdn Bhd will focus on lifting its mammoth plantations division for the first three years once the merger between three key companies that form Synergy Drive is completed.
The group would also seek to grow its property division and increase its international businesses, said the company's chief executive-designate and Sime Darby Bhd group chief executive Datuk Ahmad Zubir Murshid.
However, it would only review the prospects of its other businesses after three years, he said in an interview.
“People ask me what is the post-merger strategy for Synergy Drive and my answer is simple,'' he said. “What we are going to focus on is the core business which we are good at, which is in line with what Sime Darby has done.''
Synergy Drive will be created from a merger between Sime Darby Bhd and other listed companies – Golden Hope Plantations Bhd, Kumpulan Guthrie Bhd, Mentakab Rubber Company (Malaya) Bhd, Guthrie Ropel and Highlands & Lowlands Bhd. A mandatory general offer will also be triggered for Negara Properties (M) Bhd as a result of the merger.
The merger will create the world's largest listed oil palm plantations company and a property giant in Malaysia.
“Synergy Drive may be construed as just a plantation business. But overall, plantations will probably account for 42% of Synergy Drive's operating profit. There is another 57% that is non-plantation and this is equally critical,'' said Zubir.
As the biggest component of Synergy Drive, due attention will be paid to the palm oil business. Zubir said one of the main things that needed to be done was to improve its overall performance.
The company intends to raise yields and costs to match the best-in-class companies.
“I think that will be our benchmark – to improve ourselves to that level – and there is room for improvement. I have tasked my team to look at the yield factor, and with this integration, we can get the synergy value out of it,'' he said.
Apart from benefiting from the larger scale in terms of costs, seed technology, sharing of facilities, best practices and economies of scale, Synergy Drive will also seek to grow the downstream side of the palm oil business.
“We want to be selective in downstream. Downstream margins are very thin and the bulk of it is in the origination (from plantations), but we cannot ignore it,'' he said.
Zubir said the group owned refineries in a number of countries in the world but the intention was to build refineries in China and India.
“In oleochemicals, we are looking at areas that can give us better margins from the niche markets,'' he said.
Apart from growing its acreage and building refineries, Synergy Drive also intends to use its clout and position as the world's biggest palm oil company to campaign for the greater use of palm oil in food and biodiesel.
“We should also dispel the misconception about palm oil. As a big world player, we should go into sustainability management and talk about the environment. This is something we have been working on,'' he said.
Along with plantations, property will be another big area the group would be looking at, and Zubir believes the larger land bank is an opportunity for transformation.
“This will give us the opportunity to play in a field where we can be in the upmarket or niche areas,'' he said.
With the transformation, Synergy Drive will be able to coordinate better the adjacent sites previously owned by different companies.
One such example is the Guthrie Corridor, which is beside Sime Darby’s Bukit Rajah development.
“As opposed to duplicating the development, we could complement it,'' he said, adding that the group would also look at branding and creating niches.
One new and exciting prospect is the property business overseas.
Sime Darby has properties in Singapore, Australia, Vietnam, China and Indonesia (via an associate). With the bigger resources available to the group following the merger, such assets could be further developed.
“With the assets we have, we could look into asset management. By combining the assets of the three companies, we could manage our own REITs (real estate investment trusts), for instance,” he said.
Apart from plantations and property, the other core businesses of Synergy Drive will come from Sime Darby's existing operations, of which about 70% of revenue and 60% of profit come from overseas. These include, among a host of businesses, motor, heavy equipment, power and utilities.
Zubir said the group, which had spent more than RM1bil on the motor business over the past two years, would be looking to consolidate its investment and maximising its returns.
“People ask me about motor and I tell them we have been successful outside Malaysia. Although the Malaysian auto industry has recently been badly affected, we are lucky that we are a regional and global player,'' he said.
With motor operations in Singapore, Australia, New Zealand, Hong Kong and China, Sime Darby is also BMW's third largest dealer group globally. Sime Darby is also the world's fifth largest dealer for heavy equipment maker Caterpillar.
“For me, why should we divest if we are in that global position? We should grow these businesses,'' said Zubir.
On energy and utilities, Zubir believes these businesses offer the group tremendous prospects.
The high price of oil has led to a surge in exploration work and Sime Engineering's fabrication yard is full with orders. More than 50% is from overseas, particularly the Middle East.
“This shows there is growth opportunity in the overseas markets,'' he added.
On the power business, Sime Darby has its stake in PD Power and is looking to increase its capacity in Laem Chabang in Thailand.
The group has also expressed its interest to operate the Bakun dam.
“If we were given the opportunity, that would dramatically enhance our growth,'' said Zubir.
On ports and water business, Sime Darby has operations in China where its margins are very good. Both of these are in Weifang in the Shandong Province.
“We are looking at expanding because the demand for cargo and water has doubled,'' said Zubir.
Zubir, nonetheless, added that after the first three years post-merger, Synergy Drive could review the businesses and see whether they were still competitive and gave it a good return.