Sime Darby cautious about its prospects

  • Corporate News
  • Thursday, 27 Feb 2020

Sime Darby Berhad Group Chief Executive Officer Datuk Jeffri Salim Davidson (centre) with Sime Darby Berhad Group Chief Strategy Officer Datuk Thomas Leong Yew Hong (right) and Sime Darby Berhad Group Chief Finalcial Officer Mustamir Mohamad (left) during the Media Briefing on Sime Darby Berhad's Q2 Financial Results FY2020 at Menara Sime Darby, Selangor.

PETALING JAYA: Sime Darby Bhd is cautious about its prospects for the second half of its financial year amid the worsening coronavirus disease (Covid-19) outbreak.

Group chief executive officer Datuk Jeffri Salim said although there has been a reduction of its business in China, it was difficult to quantify it.

According to him, it is too early to predict the full impact on the group’s operations but the company is hopeful that its strong first half results will cushion the impact.

Some 40% of Sime Darby’s business is in China.

“If this (Covid-19) lasts for one to two years, then we’re all in trouble. But like the SARS (severe acute respiratory syndrome) outbreak, it took three to six months before things got back to normal.

“It’s very tricky and difficult to say if there is any impact on us if any, ” he told a media briefing here on the group’s results for the first half of the financial year 2020 (1HFY2020) yesterday.

Without Covid-19, the group would have been fairly confident especially with its strong mining business in Australia and a strong demand in China in terms of equipment as the government is still spending money on infrastructure.

“For the smaller markets, Singapore is weak, Malaysia is okay, New Zealand is weak but overall quite positive, ” Jeffri said.

While vehicle sales in China are expected to be severely impacted, the group expected the luxury segment to continue growing over the long-term with the increasing higher-income population.

Car sales are also expected to be impacted in Malaysia, Singapore, Thailand and Australiasia and Hong Kong while a steady market is expected in New Zealand for commercial vehicles.

The conglomerate‘s net profit for the second quarter ended Dec 31,2019 slid 11.04% year-on-year (y-o-y) from RM317mil to RM282mil.

It would have recorded a 50% jump in net profit if not for the recognition of a deferred tax credit of RM129mil arising from the change in Real Property Gains Tax (RPGT) rates in the previous corresponding period.

The group’s revenue rose 8.34% y-o-y from RM9.42bil to RM10.21bil for the quarter.

For the half year ended Dec 31 last year, Sime Darby’s net profit dropped 2.58% y-o-y from RM542mil to RM528mil while its revenue went up 7.76% y-o-y from RM18.27mil to RM19.69bil.

Sime Darby announced an interim dividend of two sen per share.

The group’s order book for the industrial segment rose 15.4% to RM2.87bil as at Dec 31 last year from RM2.49bil on Sept 30.

“The order book reflects our business in Australia.

“There is a significant demand for metallurgical coal that is used to make steel.

“Our miners in Australia are very busy and their cost of production is relatively low so the demand for our equipment, parts and our service remains very strong, ” Jeffri said, adding that there was also a new mine in Australia that purchased machines from Sime Darby.

He expected the segment to be fairly positive for at least another year to a year and a half.

Group chief financial officer Mustamir Mohamad said Sime Darby’s total debt as of December 2019 rose 6.4% to RM5.7bil from September 2019 and the group’s relatively low gearing ratio gave them a comfortable headroom for further expansion.

On the group’s plan to divest its 30% ownership in Tesco Malaysia, Jeffri said the stake will be sold when the timing and opportunity is right, in the long run.

“Tesco is not a core business for Sime Darby and we’re looking at exit opportunities for all our non-core businesses.

“We have many legacy non-core businesses and we’ve exited a lot of companies in China, our group shared services business. So, quite a few more to go.

“If we sell Tesco, our land and whatever non-core that we have, we should generate quite a lot of cash, which we can use to pay off our loan, invest in new businesses or pay out dividends, which I’m sure our shareholders will prefer, ” he said.

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