KUALA LUMPUR (Feb 16): Sime Darby Bhd’s net profit fell by 45.5% to RM345 million for the second quarter ended Dec 31, 2021 (2QFY22), compared with RM633 million in the previous year’s corresponding quarter, which benefitted from a one-off gain of RM272 million on the divestment of the group’s stake in Tesco Malaysia.

Earnings per share dropped to 5.1 sen from 9.3 sen, the conglomerate said in an exchange filing on Wednesday (Feb 16).

Core net profit for 2QFY22 was 4.4% lower at RM345 million, compared with RM361 million in the corresponding quarter last year, due largely to lower profits from the industrial division’s China and Australasia operations.

Revenue for the quarter fell 6.29% year-on-year to RM10.54 billion in 2QFY22 from RM11.24 billion.

On a quarter-on-quarter (q-o-q) basis, Sime Darby’s net profit, however, rose 46.19% from RM236 million in 1QFY22 due to stronger results from the industrial and motor divisions, despite a dip in revenue of 1.28% from RM10.67 billion.  

The group declared a first interim dividend of four sen, 33.33% lower than the six sen paid out last year. The ex-date for the dividend is April 25 while the payment date is May 11.

For the cumulative six months ended Dec 31, 2021 (1HFY22), net profit shrank 36.43% to RM581 million from RM914 million a year ago in the absence of the gain from the Tesco Malaysia deal.

Core net profit was down 8.2% to RM581 million due to lower contribution from the industrial division which was affected by overall industry volume contraction in China and weaker operating margin in Australasia. Six-month revenue was down 4.12% to RM21.2 billion from RM22.12 billion a year ago.  

“We obviously benefitted from the one-off RM272 million gain from the sale of the group’s stake in Tesco Malaysia last year. On a purely core profit level, for 2QFY22, we were able to deliver resilient results despite tough market conditions, and this is testament to our strong foundation and the effective strategy which we have put in place,” Sime Darby group chief executive officer Datuk Jeffri Salim Davidson said in a statement.

“The Chinese economy, driven by consumer-led spending, remains very strong. However, a slowdown in infrastructure spending led to a decline in demand for heavy equipment, which together with intense competition from local Chinese original equipment manufacturers, impacted our industrial China business,” he added.

Despite partial lockdowns in some markets, he said the demand for motor vehicles remained strong.

“There has been some impact from supply constraints, and this has affected sales volumes, especially in China. On the flip side, our Malaysian operations were boosted by higher margins from car sales whilst our commercial vehicle deliveries in New Zealand increased significantly during the second quarter.”

Jeffri stressed that China is the largest car market in the world and Sime Darby’s most important market for the motors division.

“We continue to believe in its growth potential for the long term. Therefore, we will continue to expand there in terms of luxury and electric vehicles distribution. We remain committed to our long-term growth strategy, which focuses on organic and inorganic expansion for the motors and industrial divisions in Asia Pacific.

“We believe our geographical spread across 19 countries in the world’s fastest growing economic region and our strong balance sheet place us in a good position to weather the short-term headwinds ahead and to capture any potential opportunities.”

On prospects ahead, the group warned that the rising number of Covid-19 cases may still pose a risk to its operations in the near term.

Noting that the heavy equipment market in China is expected to contract, it said this is mitigated by the expected strong equipment deliveries in Australasia driven by strong coal prices and fiscal stimulus policies.

“The acquisition of Salmon Earthmoving in Australia will expand the rental equipment business and is expected to contribute positively to the profits of the industrial division,” it said, adding that demand for luxury vehicles is likely to remain strong, particularly in China.

However, supply constraints will continue to impact the availability of certain models. This is expected to be partly mitigated by the higher vehicle margins as a result of lower discounting.

Taking into account the net one-off gains mainly from the disposal of non-core assets 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.

At noon market break, shares in Sime Darby were down one sen or 0.44% to RM2.27, for a market capitalisation of RM15.46 billion.

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