MARKET DEVELOPMENT
Sime Bullish on Growth Outlook
Sime Bullish on Growth Outlook
29/11/2014 (New Straits Times) - SIME Darby Bhd, which posted a higher net profit of RM500.69 million in the first quarter ended September 30, is confident of its growth outlook, given the stabilised crude palm oil (CPO) prices.
President and group chief executive Tan Sri Mohd Bakke Salleh said CPO prices had rebounded from a five-year low in September and are projected to hover at between RM2,200 and RM2,500 until end-June next year.
“Despite the recent CPO price drop, our plantation business is still fundamentally solid,” he said
first after announcing Sime Darby’s quarterly results, here, yesterday.
“The outlook is based on the higher biodiesel mandate in Malaysia and palm oil’s attractiveness compared to other vegetable oils,” Bakke added.
The two per cent earnings rise, compared to RM487.98 million a year ago, was achieved on the back of a RM10.12 billion revenue, which is down 4.3 per cent from RM10.58 billion a year ago.
Its plantation business, the biggest earnings contributor at more than 40 per cent, saw improved fresh fruit bunches (FFB) production and oil extraction rate (OER). Total FFB production was higher at 2.52 million tonnes in the quarter, compared with 2.47 million tonnes a year ago.
The group said its upstream segment achieved higher sales volume and lower operating cost in the quarter, in addition to improvement in operational efficiencies.
This helped to offset the lower average CPO price realised of RM2,187 per tonne against RM2,331 per tonne in the period, Bakke said.
“We continued to face significant challenges mainly due to lower average CPO price realised and falling coal prices. However, our ability to drive operational improvements across the group has helped cushion the impact,” he added.
CPO prices dropped to RM1,950 per tonne in September, its lowest since 2009, as output from Indonesia and Malaysia topped demand amid a glut in global cooking oil supplies, including soya bean oil.
Meanwhile, Malaysia, the world’s second largest palm grower, will lift its mandate for biodiesel use to seven per cent palm oil in stages from this month, up from five per cent, as it looks to lower stocks and prop up prices that have lost more than 20 per cent this year.
The industry regulator had previously pegged stocks to range between 1.6 million and 1.8 million tonnes at the end of this year, lower than the 1.99 million tonnes piled up at the end of last year.
Malaysia reportedly produced 14.66 million tonnes of CPO in the first nine months of the year, up seven per cent from a year earlier. Last year, total production stood at 19.2 billion tonnes, of which Sime Darby contributed 10 per cent.
Total output is set to rise to 20.5 million tonnes next year in the absence of extreme weather that could hurt yields, according to reports.
On another development, Bakke said Sime Darby has appointed an investment bank to help list its motor division in Malaysia.
It is still considering listing or spinning off its plantation assets in Indonesia.
“For the listing of our Indonesian assets, it could come in the form of an initial public offering or a
reverse takeover. Our motor division is expected to be listed by July or August next year. It could be earlier, but in the event the business climate takes a turn for the worse, then we may even have to defer it,” he added.
Sime Darby’s satisfactory performance was also due to its motor and property divisions’ better sales in Australia, New Zealand and Vietnam, and higher profit from recently launched property development projects.
President and group chief executive Tan Sri Mohd Bakke Salleh said CPO prices had rebounded from a five-year low in September and are projected to hover at between RM2,200 and RM2,500 until end-June next year.
“Despite the recent CPO price drop, our plantation business is still fundamentally solid,” he said
first after announcing Sime Darby’s quarterly results, here, yesterday.
“The outlook is based on the higher biodiesel mandate in Malaysia and palm oil’s attractiveness compared to other vegetable oils,” Bakke added.
The two per cent earnings rise, compared to RM487.98 million a year ago, was achieved on the back of a RM10.12 billion revenue, which is down 4.3 per cent from RM10.58 billion a year ago.
Its plantation business, the biggest earnings contributor at more than 40 per cent, saw improved fresh fruit bunches (FFB) production and oil extraction rate (OER). Total FFB production was higher at 2.52 million tonnes in the quarter, compared with 2.47 million tonnes a year ago.
The group said its upstream segment achieved higher sales volume and lower operating cost in the quarter, in addition to improvement in operational efficiencies.
This helped to offset the lower average CPO price realised of RM2,187 per tonne against RM2,331 per tonne in the period, Bakke said.
“We continued to face significant challenges mainly due to lower average CPO price realised and falling coal prices. However, our ability to drive operational improvements across the group has helped cushion the impact,” he added.
CPO prices dropped to RM1,950 per tonne in September, its lowest since 2009, as output from Indonesia and Malaysia topped demand amid a glut in global cooking oil supplies, including soya bean oil.
Meanwhile, Malaysia, the world’s second largest palm grower, will lift its mandate for biodiesel use to seven per cent palm oil in stages from this month, up from five per cent, as it looks to lower stocks and prop up prices that have lost more than 20 per cent this year.
The industry regulator had previously pegged stocks to range between 1.6 million and 1.8 million tonnes at the end of this year, lower than the 1.99 million tonnes piled up at the end of last year.
Malaysia reportedly produced 14.66 million tonnes of CPO in the first nine months of the year, up seven per cent from a year earlier. Last year, total production stood at 19.2 billion tonnes, of which Sime Darby contributed 10 per cent.
Total output is set to rise to 20.5 million tonnes next year in the absence of extreme weather that could hurt yields, according to reports.
On another development, Bakke said Sime Darby has appointed an investment bank to help list its motor division in Malaysia.
It is still considering listing or spinning off its plantation assets in Indonesia.
“For the listing of our Indonesian assets, it could come in the form of an initial public offering or a
reverse takeover. Our motor division is expected to be listed by July or August next year. It could be earlier, but in the event the business climate takes a turn for the worse, then we may even have to defer it,” he added.
Sime Darby’s satisfactory performance was also due to its motor and property divisions’ better sales in Australia, New Zealand and Vietnam, and higher profit from recently launched property development projects.