Published August 28, 2009

Sime profit falls 38% as palm oil prices slide

By PAULINE NG
IN KUALA LUMPUR

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MALAYSIA'S biggest planter Sime Darby's earnings fell 38 per cent to RM2.34 billion (S$956 million) for the year to end June on lower crude palm oil (CPO) prices.

Bumpy ride: The plantations division registered lower production, leading to a 56% fall in operating profit

Sime attributed its weaker results to softer average CPO prices, which, coupled with lower production because of biological tree stress and unfavourable weather conditions, resulted in its plantations division registering a 56 per cent decline in operating profit to RM1.7 billion from a year ago.

But some of the conglomerate's other divisions surprised by turning in better-than-expected performances. In spite of the global volatility, its industrial division increased its operating profit by a fourth to RM862 million, driven mainly by its South-east Asian and Australasian operations, as well as strong demand from Singapore's marine and oil and gas sectors.

Thanks to its China operations, Sime's motor unit also showed resilience, posting a 13 per cent rise in operating profit to RM179 million. Its property division also managed to eke out a 4 per cent growth in operating profit to RM462 million, the property slump notwithstanding.

One unit which was badly hit was its energy & utilities which recorded an 82 per cent plunge in profit to RM41 million, owing to cost escalations incurred on fabrication and engineering projects as a result of higher off-shore costs arising from volatile oil prices.

Sime's revenue for the full year declined 9 per cent to slightly over RM31 billion from about RM34 billion the year before.

However, its revenue for the last quarter was 17 per cent lower to RM7.5 billion, while its profit shrank 8 per cent to some RM1 billion.

The group has proposed a final single tier dividend of 15.3 sen, having earlier paid an interim dividend of 5 sen per share less tax.

Although Sime noted uncertainty persists in certain market segments, it said the market conditions under which it operates appear more favourable now as evidenced by stronger CPO prices. On a quarterly basis, its plantations unit saw a 785 per cent jump in profit as CPO rose to an average RM2,315 per tonne in the last quarter from RM1,771 in the previous quarter.

Analysts are mixed on Sime's prospects but stockbroker RHB which has an 'outperform' on the stock considers its property division could deliver more robust earnings in the coming years.

The country's largest landbank owner, Sime has grand ambitions for its Vision Valley (SDVV) development which stretches across 1.2 million acres with gross development value estimated at RM25-RM30 billion. It owns 126,000 acres in the valley and has earmarked 80,000 acres for development.

Earlier, it had hoped to partner with budget carrier AirAsia to build a new low cost terminal in Labu, Negri Sembilan in the SDVV to act as a catalyst for the development. The plans were, however, scuttled after the government decided to keep the aviation hub in Sepang where a new low cost terminal is to be built by state owned airport operator Malaysia Airports.

Even so, RHB remains optimistic about the project. 'We are positive on these plans and developments especially given the improving property values and reviving investor risk appetite in Malaysia as the economic recovery gains momentum,' it said in a client note.

It has projected the property division would increase its profit contribution by 11 per cent in the new fiscal year, before doubling in the one after.