KUALA LUMPUR (May 22): Sime Darby Bhd announced today it is unlikely to meet its headline key performance indicator (KPI) target of RM2.5 billion net profit for the financial year ending June 30, 2015 (FY15) and a return on equity (ROE) of 8.5%.

Sime Darby president and group chief executive Tan Sri Mohd Bakke Salleh said the group is now hoping to close FY15 with a net profit of RM2 billion to RM2.1 billion instead.

"The net profit for the cumulative 10 months (until end of April) is RM1.5 billion. So it is impossible for us to get RM1 billion over the next two months," Sime Darby president and group chief executive Tan Sri Mohd Bakke Salleh told reporters after a briefing on the group's third quarter of FY15 ended March 31, 2015 (3QFY15) results today.

He said the group does not expect to achieve its FY15 KPI due to low CPO prices and other conditions affecting business in its others divisions.

Mohd Bakke said the KPI target of achieving RM2.5 billion in net profit for FY15 is based on several assumptions, the more notable of which is a crude palm oil (CPO) price of at least RM2,350 per tonne.

Mohd Bakke said he expects CPO prices to average between RM2,200 to RM2,400 up until the end of the calendar year of 2015.

He said prices may go higher if the El Nino effect were to kick in this year, but added "it is too early to look into the El Nino effects" now.

Sime Darby Plantation managing director Datuk Franki Anthony Dass said the company will only be sure of the effects of El Nino on its plantations from July onwards, especially in Indonesia.

He said a moderately strong El Nino will reduce production of fresh fruit bunches (FFB) by 6% to 10% and a severe occurence could reduce FFB production by 15%.

He also shared that the group's construction on the mini oil mill in Liberia will be completed by October this year.

Sime Darby Group chief financial officer (CFO) Datuk Tong Poh Keow said the average CPO price realised in 3QFY15 was RM2,209 per tonne, down 14% on-year from RM2,573 per tonne previously. 

Tong also said lower coal and mineral prices, together with the strengthening of the US dollar, had affected the group's industrial division, especially its Australasia and China operations, as well as its motor division.

The group is planning to cut its workforce in its Australian and Chinese operations by some 2,000 workers by the end of June this year.

Separately, Mohd Bakke said the government's plan to set up the Malaysian Vision Valley in Negri Sembilan on 108,000 ha of land under the 11th Malaysia plan will be a boon for the group.

"We have some estates that are part and parcel of the Malaysian Vision Valley. We are blessed to have landbanks in the growth corridor," he said.

The Malaysian Vision Valley, to be located in western Negri Sembilan, will cover Nilai, Seremban and Port Dickson. It was announced by Prime Minister Datuk Seri Najib Razak yesterday as a new integrated development encompassing several strategic clusters to complement the developments in the Klang Valley, particularly in Putrajaya and Kuala Lumpur.

Mohd Bakke also said the group has put on hold its plan to list its divisions, pending more favourable market and business conditions.

"There is no rush, no push factor. We are still growing the business and looking for opportunities in the market to expand," he added. Sime Darby had, in February, deferred the listing of its auto division.

Sime Darby (fundamental: 1; valuation: 1.1)'s net profit fell 55% to RM386.04 million in 3QFY15 from RM852.53 million a year earlier, while revenue was largely flat at RM10 billion from RM10.1 billion previously.

Year to date (YTD), net profit was down 39% to RM1.32 billion from RM2.16 billion a year earlier; revenue contracted 1.7% to RM30.86 billion from RM31.39 billion in the same period.

YTD plantation profit plunged 45.9% from a year earlier, while industrial division recorded a 51.1% fall. Its automobile unit's profit was also lower by 17.8%.

(Note: The Edge Research's fundamental score reflects a company's profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)