Sime bracing for lower profit

KUALA LUMPUR: Sime Darby Bhd seems to be bracing for a tougher time ahead based on its net profit target of RM3.2 billion for financial year 2013 ending June 30 (FY13).

This is a 23.8% drop against the RM4.2 billion net profit recorded in FY12, and slightly below the RM3.3 billion key performance indicators (KPI) target last year.

However, president and CEO Datuk Mohd Bakke Salleh said the lower headline KPI target for FY13 is a prudent figure, derived from conservative assumptions on realisable crude palm oil (CPO) prices as well as expectations of growth at its five other divisions, given the economic uncertainties and volatility in commodity prices.

“It is an attainable figure, a figure we are comfortable with. There is obviously an upside,” Mohd Bakke told reporters at a media briefing on the conglomerate’s first quarter (1Q) results yesterday .

Bakke pointed out that the 1QFY13 earnings of RM990.3 million was already over 30% of its full-year target.

“Results for October look encouraging … hopefully we’ll achieve RM3.2 billion or slightly higher for the full year,” he said.

Sime’s headline KPI target of return on average shareholder funds of 12% for FY13 was also below last year’s target of 13.3%.

Sime posted a lower net profit of RM990.3 million, or 17.87 sen per share,  for 1Q, a 7.8% drop from the RM1.07 billion , or 16.48 sen per share, in the previous corresponding period.

Revenue, however, rose 6.9% to RM11.83 billion from RM11.06 billion previously.

The drop in profit was largely due to smaller contribution from the plantation division on lower realised CPO prices, which fell to an average of RM2,707 per tonne from RM2,946 in the same quarter last  year.

Bakke: Hopefully we’ll achieve RM3.2 billion or slightly higher for the full year.

The plantation division saw a 6% increase in fresh fruit bunch (FFB) production to 2.94 million tonnes from 2.78 million tonnes in the same period last year.

Bakke expects CPO prices to average between RM2,600 and RM2,700 per tonne for FY13, with a gradual pick-up from RM2,500 to RM3,000 over the next six months on stronger demand and lower CPO production.

Chief financial officer Tong Poh Keow said Sime Darby had high stock levels as at end-September  as it “intentionally held back sales” in anticipation of firmer CPO prices ahead.

The plantations division, which accounts for half of the group’s quarterly profit, saw its pre-tax profit fall 28% year-on-year (y-o-y) to RM672 million from RM933 million in the same period last year.

Sime said it would be negatively affected by the scrapping of the duty-free CPO export quota from Jan 1, 2013. However, this impact will be mitigated by “the opportunity to fully utilise” its refining capacity, and the company expects more of its own CPO production to be channelled to its refineries from 39% currently.

Of its five other divisions, only the healthcare business saw its contribution decline by 21% y-o-y to RM5.4 million due to start-up costs at its new hospital in Ara Damansara.

Its industrial division saw pre-tax profit grow 16% to RM382.4 million, helped by its Australasia mining and Singapore oil and gas businesses. Order book for the division stood at

RM3.5 billion, spread over three years, as some clients deferred orders and cut expenditure. Even though its Australia business was hit by new taxes, Sime Darby expects coal production to remain strong next year.

The automotive business recorded a 4% growth in pre-tax profit to RM161.3 million, as strong sales of BMW and Hyundai in Malaysia and Peugeot in Australia and New Zealand helped counter declines in China and Singapore.

The property division’s pre-profit rose 15% to RM69.5 million in 1Q, with unbilled sales of RM1.15 billion as at end-September. Property launches worth at least RM1.6 billion in gross development value are planned for the year ahead, including the RM1.3 billion Bandar Universiti Pagoh township in Johor. This excludes phase 1 of Battersea Power Station in

London worth £1.2 billion, which it is building with  S P Setia Bhd.

The energy and utilities division also saw an improved pre-tax profit of RM58.2 million in 1Q, up from RM47.3 million previously. Higher profit contribution from the power business, mainly from Thai operations, was offset by a lower profit contribution from China utilities operations due to higher depreciation charge on new facilities.

Sime fell three sen to RM9.50 yesterday.