KUALA LUMPUR (Nov 29): Sime Darby Bhd reported on Monday that first-quarter net profit fell 16.01% to RM236 million from RM281 million a year earlier mainly due to lower profit from the diversified group's heavy equipment distribution business and after the company registered a year earlier foreign exchange gains against an operating environment marred by Covid-19 pandemic-driven movement restrictions.

Besides Sime Darby's heavy equipment distribution business which is undertaken under the group's industrial division, its businesses include car dealerships and hospital operations under its motors and healthcare segments respectively. 

In a filing with Bursa Malaysia, Sime Darby said revenue slipped to RM10.67 billion in its first financial quarter ended Sept 30, 2021 (1QFY22) from RM10.88 billion a year ago.

"The group’s results in the current quarter were impacted by the market contraction for industrial equipment in China and Covid-19 restrictions in certain countries. Some of the restrictions have since eased and together with government stimulus/incentives, sales are expected to recover. 

"The outlook for the industrial division is mixed. While strong commodity prices and government fiscal stimulus in certain countries would support equipment sales and servicing, competition from local Chinese manufacturers may continue to impact the industrial business in China. There is also uncertainty whether recent softening of the China equipment market after last year’s government stimulus would continue.

"For the motors division, demand for luxury vehicles is expected to remain strong, especially in China. Although there are supply issues for certain models, this may be partly mitigated by better margins from vehicle sales. However, the risk of Covid-19 restrictions being tightened or reintroduced remains,” Sime Darby said.

Sime Darby did not declare any dividend for 1QFY22.

On a quarter-on-quarter basis, Sime Darby however reported higher net profit in 1QFY22 from the preceding 4QFY21. 

"The group’s net profit was 11.8% higher against the preceding quarter mainly due to net one-off losses in 4QFY21,” Sime Darby said.

Looking ahead, Sime Darby is also mindful of the government's proposal to impose tax on companies’ foreign-sourced income received in Malaysia. 

As Sime Darby has significant foreign operations, the taxing of the foreign-sourced income may materially impact the group’s net profit in the future, it warned.

"The Malaysia Finance Bill 2021 tabled for first reading on Nov 9 proposes to tax foreign-sourced income received in Malaysia.

"The actual impact of this proposal cannot be accurately ascertained at the moment pending further clarification on the application of this proposal. 

"Taking into consideration the net one-off gains recorded in the previous financial year and barring any unforeseen circumstances, the board expects the group’s financial performance for the financial year ending June 30, 2022 (FY22) to be satisfactory,” Sime Darby said.

In a separate statement, Sime Darby group chief executive officer Datuk Jeffri Salim Davidson said it is conscious of the economic and pandemic-related headwinds that could impact the group's performance across its markets in the Asia-Pacific region. 

"Nevertheless, we remain positive on long-term prospects in the region, given that we have built strong fundamentals and fired up our businesses to remain resilient and well-positioned to capitalise on growth opportunities,” Jeffri said.

On Sime Darby’s acquisition of Australia’s Salmon Earthmoving Holdings in October, he said the purchase will not only contribute between RM150 million and RM180 million to the group's revenue for FY22, but also ensure its diversification into the construction-rental sector and into a new market in Australia.

"We will continue to look for further growth opportunities and to manage the efficiency of our operations in order to mitigate any impact brought upon by external factors,” he said.

At noon break on Monday, Sime Darby’s share price slid two sen or 0.9% to RM2.21, valuing the group at about RM15.03 billion.