Sime Darby Bhd is pushing the frontier to set higher standards in transparency and corporate governance via its stern action in sacking two senior executives said to be accountable for the RM120mil losses in futures trading at subsidiary Golden Jomalina Food Industries Sdn Bhd.
The newly-merged entity is out to prove that no stones will be left unturned, especially pertaining to the irregularities in its highly-diversified operations.
Most analysts viewed Sime Darby's action positively as the adoption of highest standards of governance was imperative for the protection and enhancement of stakeholders' value and the performance of the group.
Kenanga Research, in its latest note, said: “The move clearly reflects the no-nonsense approach of Sime Darby in accountability of its senior management for their actions.”
The brokerage is also maintaining a “buy” call on Sime Darby with a target price of RM12.90 as it expects the impact of the losses in futures trading to the group's 2008 earnings to be nil as provisions had been made earlier.
Traders, meanwhile, want the Securities Commission to boost its regulatory powers and step up surveillance to curb speculation and prevent price manipulation by participants in the highly sensitive crude palm oil (CPO) futures market.
The regulator must ensure market transparency by insisting on the publication of daily and weekly data showing the proportion of commercial, non-commercial and hedge funds participants to the public.
“This is done in all US derivatives markets,” a trader said.
Citing the losses at Golden Jomalina, he said: “I suspect a certain degree of speculation led the company to take short position to make quick profits but it backfired when the price of CPO continued to hit new all-time highs.”
He said while most plantation companies took active derivatives position, they needed to draw the line on the importance of managing their risk exposure.
The KPMG Forensic division tasked to undertake an investigative review on the trading losses at Golden Jomalina, however, declined to furnish the details of its audit report.
Aseambankers, in its note yesterday, said: “We have cross-checked Sime's second-quarter (ended Jan 31) results and noted that RM71.6mil in losses at its downstream operation were accounted for in the first half.”
The management then explained that the losses were due to higher feedstock costs and losses in its biodiesel division.
For the nine months to March 31, the losses were subsequently reduced to RM22mil.
“Hence, we believe that the RM120mil future trading losses may have been provided for in the first half.”
Nevertheless, Aseambankers said, in the worst case scenario, if these losses were provided for in the fourth quarter, the net impact on its RM3.45bil net profit forecast for the financial year ending June 30 would be a mere 2.5%.
More importantly, Sime Darby needs to address investors in detail at its upcoming briefing on how it can avert the occurrence of similar untoward incidents.
Sime Darby fell 10 sen to RM9 yesterday, the lowest since June 5.
Did you find this article insightful?