Seeing rebound, Sime Darby eyes M&A opportunities in China’s motor industry

25, May. 2020

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By Charlotte Chong

While many companies in the world are counting losses and unsure about the future, cash-rich Sime Darby Berhad will look out for good deals as social distancing measures start easing.

Like most businesses, the Malaysian conglomerate has been hard-hit by the coronavirus pandemic in the past few months.

However, its sterling performance in the first two quarters of FY2020 ended last December has put it in good stead to make investments in the motor sector to help boost shareholder. Sime Darby also noted that consumer sentiment in China has been indicating a rebound, its spokesperson told NNA on Friday.

Sime Darby reported a profit before interest and tax of 1.1 billion ringgit ($252 million) for the nine-month period ended Mar. 31, a 7.5 percent increase from the same period last financial year.

The spokesperson told NNA, “We are conscious that uncertain times uncover opportunities as well, and we will continue to keep a look out for good deals on the horizon.”

It is likely to look out for investments to enhance core businesses such as motor sector after having disposed non-core Tesco Stores (Malaysia) Sdn. Bhd.

In its media statement, Sime Darby said "strong operating results from the first half of the financial year provided the Group with a buffer to soften the impact" on its revenue of its Greater China operations in the January-March quarter following the coronavirus outbreak in China.

Its profit fell 20.2 percent to 265 million ringgit in the quarter, due to poorer showing from its industrial and motors divisions in Greater China.

Revenue for the first nine months went up 4.8 percent to 28.1 billion ringgit, while net profit fell 15.8 percent to 643 million ringgit.

Sime Darby Group CEO Dato Jeffri Salim Davidson said, “The solid performance of our operations in the first half of the financial year cushioned the adverse results in the third quarter."

Noting that the China economy has shown strong signs of recovery, he said, "Our operations in China are now almost back to normal. Demand for cars and hydraulic excavators there appears to have rebounded and both the motors and industrial operations have had a relatively strong April."

Confident of a market rebound, the spokesperson said consumers will still aspire for “a well-made German luxury car" while the demand for luxury brands can be "quite resilient”.

“We see this from our China operations, where after the lockdown, consumer spending has come back quite quickly,” the spokesperson added.

China, Hong Kong, Macau and Taiwan had contributed about 45 percent to the performance of its motors division during the first nine months, said the spokesperson.

The division saw its profit jump 8 percent to 380 million ringgit, helped particularly by its BMW operations in China in the first nine months, said Sime Darby in its statement.

Its spokesperson pointed out that the company is in a strong cash position as it has almost 2 billion ringgit in cash to cushion the coronavirus impact that ravaged in the third quarter through March.

Sime Darby’s third quarter net profit was almost halved to 115 million ringgit due to weakened logistics and motor operations. Q3 results also included a 40 million ringgit impairment on its investment in Eastern & Oriental (E&O) Berhad.

Sime Darby has operations in 18 countries and territories across the Asia Pacific region such as Australia. It is listed on the main market of Bursa Malaysia Securities Berhad.