Sime Darby 2Q earnings soar

PETALING JAYA: Sime Darby Bhd may see record-breaking earnings for its financial year ending June 30, 2024 (FY24), driven by the recognition of earnings from its series of acquisitions, coupled with the disposal of its healthcare business.

Group chief executive officer Datuk Jeffri Salim Davidson said with the inclusion of the RM2bil gain from the disposal of its healthcare business, he is confident of achieving a record-breaking year.

In November 2023, the conglomerate sold its entire 50%-equity interest in Ramsay Sime Darby Health Care Sdn Bhd (RSDH) to Columbia Asia Healthcare Sdn Bhd for RM2.84bil.

“Even excluding that, I believe the results are evident. We’ve incorporated Onsite Rental Group Ltd and Cavpower Group, not to mention the contributions from UMW Holdings Bhd in the next six months.

“So, I think we are going to have a pretty good year, record year maybe,” he told the media during the briefing of the group’s earnings for the second quarter and first half of its FY24.

The conglomerate undertook a series of acquisitions, including the purchase of Onsite in April 2023, a business-to-business equipment rental solutions provider.

This was followed by the acquisition of the Australian Cavpower Group in November 2023, a distributor of Caterpillar Inc equipment mainly in South Australia.

As for UMW Holdings, it will be delisted from Bursa Malaysia on Feb 19, 2024, marking the completion of its privatisation by Sime Darby.

These strategic moves aim to streamline the conglomerate’s portfolio with a focus on industrial and motor businesses.

When asked about plans for the year, Jeffri said the group will require some time to “digest” the numerous acquisitions to ensure a comprehensive process of embedding them into the existing operations.

“Our operations generate significant cash flow. We’ve committed to paying dividends, ensuring at least 50% goes to our shareholders. We also have loan repayments and essential capital expenditure (capex) for maintenance,” he added.

Particularly, he said the group will focus on the growth of its two core businesses and work towards the seamless integration of UMW Holdings.

Sime Darby saw its total debt increase by 64% to RM15.9bil as at Dec 31, 2023 from RM9.7bil as at the end of September 2023.

Nevertheless, the group maintained a net gearing ratio of 0.37 times, attributed to a robust cash balance of RM7.2bil as at Dec 31, 2023.

On the increase in the sales and service tax (SST) from 6% to 8% in March and its potential impact on motor sales, Jeffri said that demand might slightly decrease due to higher car prices.

However, he added: “The underlying demand for cars in Malaysia remains strong. I’m not sure if there will be a massive impact.”

When asked about the impact of the weakening ringgit, Jeffri described it as a double-edged sword.

He said the group’s exposure in foreign currency is unique, given that 70% of its total operations are outside Malaysia.

In the second quarter ended Dec 31, 2023 (2Q24), Sime Darby reported a net profit of RM2.29bil, which was a leap higher from RM389mil in the same quarter in FY23, mainly owing to the RM2bil gain on the disposal of RSDH in December 2023.

The group’s earnings per share surged to 33.6 sen from 5.7 sen in the comparative quarter.

The board of directors announced an interim dividend of three sen per share for the first half of FY24.

Excluding the gain on disposal, Sime Darby said core net profit for the quarter amounted to RM269mil, a 7.2% improvement from the corresponding quarter last year.

Revenue for the quarter under review, meanwhile, rose to RM15.55bil from RM11.29bil in 2QFY23.

According to Sime Darby, profit before interest and tax (PBIT) for the industrial division jumped 56.7% to RM351mil, driven by the division’s Australasian operations.

The improved performance was also supported by profits generated from the group’s new acquisitions of Onsite and Cavpower.

In the motors division, PBIT increased 27.2% to RM192mil in 2Q24, driven by the Malaysian operations, which recorded a significant increase in PBIT of 84.3% from RM70mil to RM129mil.

“The strong performance by our Malaysian and Singaporean operations helped to cushion the impact of low vehicle margins at the division’s Chinese Mainland operations,” said Jeffri in a statement.

Cumulatively, Sime Darby’s net profit over the first six months of the financial year came to RM2.88bil on revenue of RM29.53bil, as compared to net profit of RM596mil on revenue of RM23.47bil in same period a year earlier.

“Overall, our businesses performed well. On the Industrial front, we are seeing good returns from our recent acquisitions of Onsite and Cavpower, which contributed to the division’s strong growth in the quarter under review.

“We are confident that the increased profits from our Australasian operations will further strengthen our Industrial business and continue to contribute positively to the Group’s earnings,” he added.

On outlook, Jeffri said the group’s industrial division currently holds an order book of RM4.2bil, driven by robust demand for its industrial equipment.

Highlighting an uptick in mining equipment and the sustained capital expenditure by Australian miners, Jeffri said the recent acquisitions of Cavpower and Onsite position Sime Darby to capitalise on these industry trends

Jeffri said the group industrial division has an orderbook of RM4.2bil due to the robust demand for its industrial equipment,

“Order backlog in Australia has declined due to strong mining deliveries in 2Q24. However, the order book remains healthy supported by demand for coal,” he noted.

Switching to the motor division, Jeffri expressed confidence in the continued strong performance in Malaysia, acting as a buffer against the weakness observed in the Chinese market.

However, the group raised concerns about the slowing pace of electric vehicle growth and the expected implementation of new tax legislations, posing potential challenges.