ARA DAMANSARA: Sime Darby Bhd is looking to exit its non-core businesses including hypermarket chain Tesco in Malaysia.
Sime Darby also expects the industrial division continue to drive its earnings for the year ending June 30, 2020.
“Our 30 per cent stake in Tesco is not core to Sime Darby’s business. In the long run, we will be exiting the business,” group chief executive officer Datuk Seri Jeffri Salim Davidson said.
“There has been some bids from Thai tycoon, who are looking to acquire Tesco Plc’s stake in the supermarket chain in Malaysia and Thailand.
“Tesco is probably in talks with banks, investors and advisors. The process is ongoing at the moment,” he said at a briefing on its half-year results today.
Jeffri said Sime Darby should generate more cash from the non-core assest disposal to pay off loan, give dividend or invest in new businesses.
Its net profit in the first-half ended December 31 2019 eased 2.58 per cent to RM528 million from RM542 million previously.
The lower earnings were dragged by a deferred tax credit of RM129 million from change in real property gains tax rates.
Group revenue rose 7.6 per cent to RM19.66 billion from RM18.27 billion contributed by strong growth in its industrial division in Australasia and China, and improved margins at its BMW China operations.
Jeffri said the growth in mining industry, particularly in Australia would propel demand for both mining equipment (Caterpillar) replacement cycles and expansion.
He said more new minings had been opened up in Australia, prompting miners to buy mining machine from the company.
“We believe that (demand) would be positive for the next a year and a half. There is still a significant demand of our equipment from miners for metallurgical coal. Miners in Australia are busy as their cost of production relatively low compared to the price of metallurgical coal. Hence, we believe the demand for our equipment, parts and services remain very strong,” he added.
As at December 31, Sime Darby’s orderbook stood at RM2.87 billion, 15.4 per cent increase from RM2.49 billion secured in September last year.
Jeffri said its mining business in Australia was still strong.
There would be encouraging demand for equipment in China backed by the Chinese stimulus measures to boost spending on infrastructure once the coronavirus outbreak is better controlled.
The outbreak in China had already impacted consumer sentiment and was likely to cause further production disruptions, he added.
On its industrial equipment and transport of cargo in China, Jeffri said disruptions to vehicle and equipment supply chains may also affect sales in other countries.
“It is still too early to predict the full impact of the outbreak on our operations, particularly in China and Singapore.
“We are actively managing the situation with the safety and wellbeing of our employees, customers and visitors to our facilities,” he added.
For the second-quarter, Sime Darby’s net profit eased 11.04 per cent to RM282 million from RM317 million, while revenue increased 8.39 per cent to RM10.21 billion from RM9.42 billion recorded in the same period a year ago.
Jeffri said Sime Darby was cautious about the prospects for the second-half of the year against the backdrop of the coronavirus outbreak.
“We hope the strong first-half will help cushion the impact,” he said.
On motors division outlook, he said sales in China was expected to be significantly affected by the outbreak.
However, Jeffri said luxury segment was likely to continue growing in the longer term on the back of increasing higher income population in China.