This article first appeared in The Edge Financial Daily on November 17, 2017

KUALA LUMPUR: Sime Darby Bhd, which is in the midst of what is termed as one of the largest demergers in the country to carve out and separately for its plantation and property businesses, is upbeat about the prospects for its demerged businesses after reporting a 2.5 times year-on-year (y-o-y) jump in first-quarter earnings to a record high.

The group’s net profit for the first quarter ended Sept 30, 2017 (1QFY18), which still consolidated the two businesses’ earnings, came in at a record RM1.32 billion versus RM522 million the year before — on the back of a 17% higher revenue of RM8.14 billion from RM6.93 billion — lifted by higher fresh fruit bunch production and sale of some assets.

Its plantation and property businesses — Sime Darby Plantation Bhd (SD Plantation) and Sime Darby Property Bhd (SD Property) — are slated to be listed by the end of this month, the company said. The group’s continuing business will then comprise industrial, motors, logistics and others. Its continuing operations alone reported a profit before tax of RM376 million during the quarter, up 21% y-o-y.

“The group, in our final quarterly report under the current structure, has performed well overall,” said Sime Darby president and group chief executive Tan Sri Mohd Bakke Salleh in a statement.

“At the plantation division, higher fresh fruit bunch production supported by higher crude palm oil prices realised increased earnings while recognition of share of profits from the Battersea development project enhanced the property division’s performance. We are also able to report on higher heavy equipment deliveries in Australia and China. The group also recognised gains on disposal of properties and investments and reversal of depreciation and amortisation of discontinuing operations.”

“This performance augurs well for the divisions as we step into the final days leading up to the listings of the pure plays, embarking on a new journey to unlock value,” Mohd Bakke added.

SD Plantation’s earnings soared near seven times y-o-y to RM1.02 billion from RM151 million in the previous year, mainly due to a RM676 million gain from the sale of land to sister company SD Property, higher earnings from upstream operations, and a one-off reversal of accruals and lower finance costs.

“Excluding the disposal gain of RM676 million and the one-off reversal of accruals for donation of RM95 million, the division’s PBIT (profit before interest and tax) was up 56% y-o-y,” said the group’s chief financial officer Datuk Tong Poh Keow during a briefing on the group’s results yesterday.

The property division — SD Property — registered a 183% y-o-y rise in net profit to RM421.69 million from RM149.07 million, mainly due to the disposal gain of its 40% stake in Seriemas Development Sdn Bhd of RM278 million and the sale of Malaysia Land Development Co Bhd of RM41 million.

“The previous corresponding quarter’s PBIT included a gain on disposal of Sime Darby Property (Alexandra) Pte Ltd of RM130 million. Excluding these gains, the division’s PBIT for 1QFY18 was RM101 million against RM54 million in 1QFY17, an 87% increase,” Tong said.

For Sime Darby’s industrial division, the group said the outlook is also positive as demand in Australasia and China is improving. The division achieved a PBIT of RM247 million in 1QFY18, up near fivefold from RM51 million last year, thanks in part to a gain on disposal of three properties in Australia of RM156 million. Excluding that, PBIT was 78% higher y-o-y.

Meanwhile, in Malaysia, mega infrastructure projects helped support the business, especially those in East Malaysia, Tong said. As for its motor industry, she said there is higher contribution from all regions except Vietnam and is expected to see modest growth moving forward.

Sime Darby shares closed unchanged at RM9.00 yesterday, after 14.41 million shares were traded, with a market capitalisation of RM60.8 billion.