Sime Darby 3Q profit lower at RM386m on plantation, industrial, automobile

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KUALA LUMPUR (May 22): Sime Darby Bhd's net profit fell 55% to RM386.04 million in the third quarter ended March 31, 2015 (3QFY15) from RM852.53 million a year earlier on lower contribution from its plantation, industrial and automobile divisions.

Sime Darby's (fundamental: 1; valuation: 1.1) revenue declined to RM10 billion from RM10.1 billion.

For 9MFY15, net profit declined to RM1.32 billion from RM2.16 billion a year earlier. Revenue contracted to RM30.86 billion from RM31.39 billion.

Sime Darby president and group chief executive Tan Sri Mohd Bakke Salleh said: "The third quarter of the current financial year continued to be negatively impacted by tough business conditions amidst macroeconomic headwinds in several regions."

"The weak markets persisted as commodity prices continued to remain soft, weighing on the overall earnings of the group. Against this backdrop, the group has implemented strict controls on capital expenditure and cost containment measures while focusing on enhancing operational efficiencies," Mohd Bakke said in a statement today.

According to notes accompanying Sime Darby's financials, 9MFY15 plantation profit fell 45.9% from a year earlier while industrial division recorded a 51.1% fall. The automobile unit's profit was 17.8% lower.

The group attributed the plantation profit decline to lower oil palm output and crude palm oil (CPO) prices. Lower income from downstream operations also led to less profit.

"Lower fresh fruit bunch (FFB) production was registered in both Malaysia and Indonesia by 7.8% and 7.3% respectively. The decline in FFB production in Malaysia and Indonesia was largely attributable to the change in cropping pattern driven by severe weather conditions," Sime Darby said.

The group said it registered an average CPO price of RM2,171 a tonne against RM2,439 a year earlier.

Meanwhile, the industrial segment's profit drop was largely due to lower equipment delivery and product support sales to the mining sector in Australia.

"Commodity prices continue to decline and coal prices in Australia are now at near marginal cost of production. As a result, the market for equipment continued to contract and competition in the product support business is intense," Sime Darby said.

The group's automobile sales in Malaysia had contended with the impact of the goods and services tax (GST).

Sime Darby said the GST, which was implemented from April 1 this year, had generated uncertainty among consumers.

"Malaysia was affected by lower contribution from Hyundai and Jaguar Land Rover as sales and margin were negatively impacted due to the uncertainty on the goods and services tax and the abolishment of sales tax on 1 April 2015," Sime Darby said.

On prospects, Sime Darby said crude oil and commodity prices remained weak and the volatile foreign exchange rates had resulted in a much tougher operating condition in markets where the group operated.

"In view of the difficult business environment, the board expects the group's performance for the financial year ending June 30, 2015 to be lower than that of the previous financial year. The group will also not meet the target Key Performance Indicators (KPIs) announced in November 2014," it said.

At 12.30pm, Sime Darby shares rose two sen or 0.22% to RM8.96 for a market capitalisation of RM55.65 billion.

A total of 276,200 units changed hands.

(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.)