By Xavier Kong
Tong Poh Keow
Sime Darby Bhd group chief financial officer Tong Poh Keow noted that headwinds are abound for Sime Darby in the coming financial year, with the group being conservative in the face of weak outlooks across its divisions.
The group’s plantations division is looking at a weaker outlook for the coming financial year, with fresh fruit bunch production expected to be lower due to the El Nino effect, as well as the haze.
“Harvesting and field activities were affected in September 2015 to early November 2015, as the air pollutant index in Kalimantan, Riau, and South Sumatra soared past hazardous levels. Yield performance in coming months will be affected as a result of lower sunlight reaching the trees, hindering photosynthesis,” said Tong, noting that the strong El Nino effect is expected to last till April 2016, with dryness affecting the group’s fields in South Johor, Sabah, South Sumatra, Kalimantan, South Sulawesi, and Papua New Guinea.
Year-on-year, Sime Darby had produced 12% more fresh fruit bunches in the recently ended first quarter of financial year 2016 (1Q16), compared to 1Q15. This was attributed to the contribution from New Britain Palm Oil Ltd (NBPOL), which contributed 387 million metric tonnes.
“Without the contribution from NBPOL, production had actually dropped, with production in Malaysia increasing 1%, but Indonesian operations producing about 11% less, making for a total drop of about 3% overall,” said Tong, attributing the rise in production in Malaysia to good agro-management practices and a number of young palms coming into maturity, and the slump in Indonesian production figures to severe and prolonged droughts.
Mohd Bakke Salleh
With regards to the concerns by industry analysts that crude palm oil market share is being taken up by Indonesia, president and group chief executive Mohd Bakke Salleh noted that Sime Darby is not worried.
Explaining that Indonesia is undeniably the largest producer of palm oil, and also penetrating markets that are Malaysian-dominated, Bakke also noted that Sime Darby has invested in Indonesia and are also exporting from there, which leads to there being no effect for Sime Darby.
“The nature of the palm oil business is predicated by population growth. Ninety percent of palm oil products are used for food purposes. With a world population of 9.5 billion, demand for edible oils will only spike,” said Bakke, providing the US and UK as examples, both of which have a per capita consumption of edible oils of 60kg. Bakke also noted that China was another growing market.
“Though China only has a per capita consumption of 27kg, this is when the country is still under the one child policy. Now that the Chinese government has moved it to a two child policy, the demand from China will only grow,” said Bakke.
“Comfort is taken in that palm oil is linked to food. As long as there are people on this planet, food will be needed,” said Bakke, also noting that palm oil supplies two-thirds of all trade in edible oils.
Motoring on
Over in the group’s motors segment, Tong noted that Sime Darby is looking to maintain its figures with new model launches, namely the Ford Ranger 2.2L special edition in Malaysia, the BMW 7 series in Australia, and the BMW 125iA in Hong Kong.
“Also part of our plan for our motors segment is the new BMW showroom in Chongqing, China. In the motors division, showrooms are, as we all know, very important, as those are the places that we come into contact and communicate with our clientele,” explained Tong.
The matter of Sime Darby’s shelved listing of their motors division on Bursa Malaysia was also brought up. Bakke, who took the question, responded that it was all a matter of market timing, and noted that activity in the initial public offering (IPO) market has dried up.
“Why do something when the market is not in the mood to support it? We were ready, and are still ready to list our motors division. However, this is not the time,” explained Bakke, noting that the demonetisation of Sime Darby’s assets is still continuing despite the shelved listing of their motors division.
On the property market
The group’s property division faces headwinds as well, but Tong noted that there are short-term catalysts as well, such as the Malaysian Vision Valley, of which 49% of the total 267,000 acres have been earmarked for future development, as well as the memorandum of understanding Sime Darby’s property arm had signed with the Penang Development Council.
Tong pointed out that about 55,000 acres of Sime Darby’s land bank are located within the potential area of the Malaysian Vision Valley, with the project allowing the group to unlock the value of their land bank in Negeri Sembilan, as well as reap immediate benefits from their existing townships like Nilai Impian and Bandar Ainsdale.
On the other hand, the memorandum of understanding that Sime Darby Property had signed with the Penang Development Council, which has an estimated gross development value (GDV) of RM1.8 billion, will have Sime Darby developing 933 acres for the small and medium enterprises industry.
Other catalysts include Rumah Selangorku at Bandar Bukit Raja, Klang, an affordable housing plan with 618 units and a GDV of RM157.9 million, which Tong notes will launch “within the next month or two”, as well as Redup in Bandar Ainsdale, Negeri Sembilan, which is also expected to launch within the next two months, and features 45 units of double-storey houses with a GDV of RM26.6 million.
Tong also provided updates on Azalea 2, Nilai Impian, and USJ Avenue, USJ Heights, both of which were launched recently, and have seen take-up rates of 41% and 88% respectively, which Tong noted as promising.
Over in Battersea, London
In terms of the group’s London foray, Bakke noted that Battersea is still strong, being located in the in-demand Zone 1.
“While I admit the property market in London has been softer in recent times, the demand for good property remains strong. As Battersea is located in Zone 1, it remains in strong demand,” said Bakke, explaining that prices were still rising, though as a slower rate.
Also noted was that the GDV of Battersea has also increased, as Sime Darby has also been working on the design aspect, and has been conducting value engineering as well.
“We have been working on the design and have been doing value engineering, which has raised the GDV of Battersea, allowing us to push through. The profit from Battersea will still be respectable,” said Bakke.
The current breakdown of Battersea’s sales, as explained by Tong on the sidelines, shows Battersea’s Phase 1 being 99% sold, with only five units left, which Tong clarified are the penthouse units. Phase 2, which is Battersea Station proper, is 90% sold, while Phase 3A, the current phase, already has over 60% sold, with Bakke adding that “the London team is working very hard to sell the remainder 40%”.
At the end of the trading day, Sime Darby’s shares were last traded at RM8.06, down 1 sen.
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