KUALA LUMPUR: Sime Darby Bhd may be facing some obstacles in its motor business with the ongoing riots in Hong Kong and uncertainties surrounding the US-China trade conflict.
Chief executive officer Datuk Jeffri Salim Davidson said while China is still its strongest car market, it is beginning to see some headwinds.
This includes Hong Kong, where the group spent a significant amount renovating a showroom but currently only attracts a small number of customers due to the chaotic situation there.
Signs of improvements may be dim, as the special administrative region just slipped into recession.
In China, the group has noticed a declining trend in the mass market but the luxury market is still going strong.
“I’m a little concerned about China. With the trade war and the impact on the Chinese economy, the theory that I guess is Chinese exporters are becoming less competitive to export to the US and they’re producing less.
“There’s less money moving around and therefore, they won’t buy cars, ” he told a press conference after the group’s AGM here yesterday.
But on the luxury vehicle front, Jeffri said Sime Darby has been performing well with its sales of BMW cars.
Even the super luxury brands such as Rolls-Royce, Lamborghini and McLaren are selling really well.
Rolls-Royce, the iconic British marque, sells more than 4,000 cars a year and Sime Darby accounts for 6% of this figure.
The motor segment is a major part of Sime Darby. In its recent financial year ended June 30, the segment contributed 60.33% to group revenue, or RM21.38bil.
And out of this, almost half the amount or RM10.4bil came from China.
It has to be noted that China, as far as Sime Darby’s financial reporting is concerned, comprises China, Hong Kong, Macau and Taiwan.
While there are no specific figures for Hong Kong itself, Jeffri said revenue from its Hong Kong business is less than 6% of the group’s total.
He said Sime Darby had no intention of exiting Hong Kong because it is a very mature market and the group has been there for 56 years.
“No matter what everybody says, Hong Kong is still a gateway to China. In the general scheme of things, its (impact on revenue) is not material.
“It’s just irritating.
“We have to make sure our staff are safe, that’s the main thing.
“We don’t want to put them at risk, ” he said, adding that there has been no damage to any of its assets there.
There are some 1,200 Sime Darby employees in Hong Kong, with 970 in its motor segment and the remaining in its industrial segment.
Sime Darby, through its Caterpillar dealership, supplies equipment to many projects in Hong Kong such as the Third Runway, the construction of roads, MRT extensions and also spare parts to the government dockyard.
Jeffri added that it is quite a “smallish business”. Its industrial business there is less affected as its machines are working on quarries and landfills.
Meanwhile, Sime Darby has estimated a capital expenditure of around RM500mil to RM600mil for financial year 2020 (FY20), up from RM380mil in FY19.
Chief financial officer Mustamir Mohamad said there would probably be some acquisitions in the pipeline.
The group also intends to grow its healthcare business and expand into both greenfield and brownfield even after losing out to the Hong Leong Group for the Columbia Asia acquisition due to valuations.
Commenting on the monetisation of Sime Darby’s on-core assets, Jeffri said there was more to come but the group was in no hurry for fire sales.
“Why are we not selling EASTERN & ORIENTAL BHD? We have a 12% stake. We need to make sure it’s the right time.
“It is trading at 67 sen today, with a net tangible asset per share of RM1.41 and an RNAV (revalued net asset value) per share of RM3 to RM4 according to experts. So, why should be sell today at 67 sen?” he asked.
Among other assets that Sime Darby is planning to monetise at the appropriate time is an 3,561ha parcel of land in Labu, which is part of the Malaysian Vision Valley, at a market value of about RM2.5bil.