Sime Darby Bhd posts record profit for 1HFY12

Sime Darby Bhd (Sime Darby) might see any of its core divisions, such as plantation, property, motor or industrial, to be listed as a separate entity from the group in calendar year 2013, according to its president and chief executive officer Datuk Bakke Salleh. However, the group is seeking the optimization of value from such exercise before it would list any of the divisions.

Speaking to the media after the group's briefing on its financial result for the second quarter financial year ending June 30, 2012 (2QFY12), Bakke said Sime Darby is in fact "working on a few initiatives" to get some of its divisions publicly listed. He said any listing exercise would be done in phases and the most probable date would be somewhere next year.

"We are working on a few initiatives. The game plan is to do it in phases and we look at the entities in our portfolio, certainly plantation, or even property, industrial and motor, will be ready for that, but it is a matter of timing and we have to consider the optimization of value. My hunch tell me that next year will be the preferred year for any kind of listing," said Bakke.

Sime Darby yesterday announced a net profit of RM1.16 billion during the second quarter ended December 31, 2011, up from RM922.9 million during the corresponding quarter due to higher realised crude palm oil (CPO) prices and strong, all-round financial performance in its other core businesses. During the quarter, the group posted revenue of RM11.4 billion, which is a 14% increase year-on-year (y-o-y) from RM9.99 billion in 2QFY11.

Net profit during the first half of the financial year ending June 30, 2012 (1HFY12) was at RM2.23 billion, an increase of 40% from RM1.61 billion recorded a year ago. The group revenue during the period meanwhile shot up to RM22.5 billion, an increase of 20.3% over the year from RM18.7 billion.

Bakke said the third quarter ending March 31, 2012 (3QFY12) is rather challenging for the group, particularly in the first two months, as yield pattern for FFB in Malaysia as well as Indonesia has dropped compared to the preceding quarter. He said the group is expecting a lower contribution from the plantation division in the next few months, and stick to its key performance indicator (KPI) of attaining RM3.3 billion in net profit for FY12.

Higher crude palm oil (CPO) prices and operational efficiency improvements boosted the Plantation Division's operating profit to RM1.8 billion in 1HFY12, an increase of 38% over the corresponding period a year ago, according to Sime Darby. Average CPO price during the period increased to RM2,872 per mt from RM2,692 per mt in 1HFY11.

The group's fresh fruit bunches (FFB) production increased by 4.6% during the period under review to 5.4 million mt, driven by the higher production in Malaysia of 9.5% which offset the decline of Indonesia's production of 3.7%, led by the 11% increase in Malaysia, which more than offset the 8% decline in Indonesia, due to change in the cropping pattern, according to the group's statement.

"The group's CPO production was also higher by 10% compared to the first half of FY11 as oil extraction rate (OER) for the group improved by 0.5% to 21.9%. Indonesia's OER had improved significantly by 1.1% to 22.9% while Malaysia's OER increased by 0.2% to 21.3%," the statement read.

As expected by analysts and economists alike, the group's midstream and downstream segment reported a loss of RM37 million for the 1HFY12 period, due to the negative margin as a result of higher feedstock costs, lower demand for refined products in Europe and competition from other downstream players in Indonesia.

Indonesia last year cut its export tax on refined palm oil to 13% from 25% , while export tax for CPO was cut by a smaller margin to 22.5% from 25% earlier. The move has made Indonesian refined palm oil being priced lower compared to their Malaysian counter parts and made refinery business there more competitive.

Nevertheless, according to Sime Darby's chief financial officer Tong Poh Keow, the group managed to leverage on the new export tax structure in Indonesia, as the group is currently building a refinery at Pulau Laut in Indonesia with a capacity of 825,000 mt per annum, which is expected to be completed by the end of 2013.

For its industrial division, the group said it continued to record robust activity in the mining, logging and construction sectors in Australia and Malaysia. The division posted an operating profit of RM627.7 million, an increase of 37.7%  over the same period in the preceding year. Its industrial business in Singapore also rebounded by 34% compared with the corresponding period due to the stronger demand for engines and heavy equipment.

Meanwhile, its China and Hong Kong operation of the industrial division reported a decline of 11% y-o-y in 1HFY12 , affected by the slowdown in construction activities following the tightening credit policies by both banks and local governments to curb the overheating of its economy, the group stated.

"Nevertheless, in the second quarter, operating profit for the China and Hong Kong operations recorded a 71% growth to RM26 million compared to the preceding quarter as certain sectors of the Chinese economy continue to remain robust and active," it stated.

Mdm Tong said going forward in the third quarter, the group foresee a better result from China and Hong Kong, as economic activity has actually picked up after the Chinese New Year holiday.

The group stated following the completion of the Bucyrus dealership in December 2011, the Industrial Division now has an expanded product line for its customers with an expected average increase in the division's profit before interest and tax (PBIT) by 10% to 11% per annum, between FY12 and FY15. Currently, the division has RM4 billion in orderbook, which could last by about eight to 18 months.

The motor division also posted a higher operating profit during the period under review at RM308 million, from RM227 million a year ago, boosted by strong demand for all marques and the receipt of dividend . Its Malaysian operation, which distributes brands such as BMW, Hyundai, Porsche and Ford, registered an operating profit of RM117 million during 1HFY12, which is more than double the RM58 million recorded a year ago.

"While the operating profit of the China, Hong Kong and Macau operations were weaker by 32% in the first half compared to the corresponding period last financial year, the second quarter results had improved by 29% against the preceding quarter supported by higher unit sales of BMW in Hong Kong and better margins in China," the group stated.

During the period, Sime Darby Motor division sold 38,935 units of cars, an increase of 10% y-o-y from 35,490 units. In Malaysia, the division sold 10,638 units, which is 10% higher than the corresponding period's 9,083 units, while in New Zealand it sold 4,131 units, a 16% increase from 3, 573 units sold during the corresponding period last year.

The BMW brand has become the industry leader in Singapore, replacing Toyota during the period under review. Performance Motor Ltd, which is a unit of Sime Darby Motor division sold 4,226 units of BMWs in Singapore during 1HFY12, compared with 3,871 units in 1HFY11, an increase of 9% y-o-y. Sale in China increase by 8% y-o-y to 13,968 units during the period from 12,896 units.

The property division's operating profit increased by 46% to RM193 million in 1HFY12, mainly attributable to higher percentage of property development works completed and sales in the various townships including USJ Heights, Bandar Bukit Raja and Ara Damansara, according to the group's statement. New launched during the quarter under review such as the Isola in Subang Jaya and Eleven Avenue in Bandar Bukit Raja were also well received.

Sime Darby's energy and utilities division meanwhile posted a 127% increase in operating profit in 1HFY12, primarily due to recognition of deferred revenue of RM99 million from its power plant in Malaysia. However, its operation in China reported a slightly lower operating profit of RM37 million, which is 3% lower that 1HFY11 operating profit of around RM38 million, as it incurred higher costs associated with capacity expansion.

Last but not least, its healthcare division posted a higher operating profit of RM14 million during the period under review, which is 7% higher compared to the same period last financial year, underpinned by higher in-patient and out-patient visits, offsetting the higher overhead costs incurred for the construction of Sime Darby Medical Centre Ara Damansara, which had its soft launch on January 12, 2012.

On the possibility that the group will be looking for another mergers and acquisitions (M&As), Bakke said the group will certainly be looking at M&A activities within the core businesses of Sime Darby, such as plantation, industrial, motor or property. Following the disposal of its oil and gas business, particularly its fabrication yards, Bakke said the group will not be seeking acquisitions of another core business at least for the next five years.

"We will only consider mergers and acquisition in the scope of our business, such as plantation, we will take on new land banks, companies that are involved in this business, why not? But definitely we will not announce a new core business at least in the next five years," he said.

Sime Darby annouced an interim dividend payment of 10 sen per share, which is an increase of 2 sen per share from the corresponding period's dividend payment of 8 sen per share. During the period under review, Sime Darby paid out RM1.33 billion of its financial year ended June 30, 2011 profit after tax (PAT) as dividends to its shareholders.

Malaysian Union - A Dream Too Far? (Part 1)

In recent years some economists have emulated an economic union between the two nations on the Korean peninsular. Yes, you read that right, a united Korea between the communist north and the capitalist south. The union between the two countries have been suggested and discussed among the economic and political sphere for quite a long time, taking precedence from the unification of the Germans in 1989. However, the unresolved war between the two nations have made the idea of a "United Korea" on the back burner of the global agenda.

The unification of the two Koreas will create a an economic and military superpower, of which according to many, will surpass that of other first world and G20 economies such as Germany, France and even Japan. Currently, South Korea has the 15th largest economy in the world, and a major industrialist in Asia and the world. The North, however, has among the poorest in Asia, with a government-led economy and an autocratic regime.

The differences of the two Koreas have caused the idea of a reunification between the two become more complicated than it sounds. For almost 60 years, since the end of World War 2, the Koreas has been divided and ruled in a completely different ways. The North has been ruled and aligned to the communists, after being put under Russian administration right after the War, while the South has been ruled as a democratic, capitalist country pursuant to it being administered by the United States in 1945.

Despite the economic and social benefits that could be created out of a united Korea, the idea is hard to be realized. Although the two governments have made several commitments towards the unification, the most prominent ones being the June 15th North-South Joint Declaration, the economic and social disparities between the two nations is so vast that there's more oppositions to the idea rather than constructive actions by both parts.

Forget about the Koreas. This article is not going to discuss about the possibility and feasibility of a United Korea. Rather, this article seek to revive an idea which has been on my hearts, and I believe, many who call themselves "Malaysians". This article seeks to put forward the idea of a united Malaysia, or better worded or construed as - the formation of a Malaysian Union or Malaysian Confederation.

Since 1946, when the Imperialist British put forward a form of governance to the then Malaya, the Malayan Union, which consisted of the 11 states of the then British Malaya (now Peninsular Malaysia), the British was the one who separated Malaya's most precious jewel - Singapore. The Malayan Union was vehemently opposed by the Malay Nationalists back then because it took away the power of the states' Sultans over the governance of the country, while the democratic-socialist movement of All Malayan Council of Joint Action - Pusat Tenaga Rakyat (AMCJA-PUTERA) opposed it on the ground that it was done undemocratically and excluded Singapore from the Union.

After nationwide opposition in the form of public disobedience famously called "Hartal", the British government proposes the Federation of Malaya instead, in 1948, replacing the Union. Once again, the British separated Malaya and Singapore into two different political entities. This was however excepted by the Malay elites who pose major influence onto the people, as the governance form of the Federation recognises the function of the states' Sultans as the Head of States, although it remained largely ceremonial up to this day. By the time the Federation came into form, the idea of a united Malaya and Singapore fought by the AMCJA-PUTERA was largely dismissed.

However, after Malaya gained independence from the British in 1957, consequently the young government reignited the idea of a united Malaya and Singapore, which will be called "Federation of Malaysia". Together with the British territories of Sarawak and North Borneo (now Sabah), the Federation was realised in 1963. Nevertheless, after only two years of unification, Singapore was expelled in a highly emotionally-charged affair. The dream of a united, progressive Malaysia together with Singapore once again diminished in 1965. Since then, the two young countries has grown into among Asia's best economically and socially in their own rights.

Singapore today has a highly-advanced capitalist economy, governed by a semi-autocratic, but democratically elected representatives. It is a high income economy, with a GDP per capita of USD50,123. It is the financial capital of South East Asia, and also its major advance technology manufacturing base. Despite its tiny geographical size, population and lack of natural resources, its visionary leaders have managed to turn the once back water economy into one which is highly regarded in the international stage.

Malaysia too has done relatively well on its own right. Since the 1960s, the country has grown to become the third largest economy in South East Asia, surpassing its larger neighbors such as the Philippines and Vietnam, and only behind Indonesia and Thailand. However, in terms of GDP per capita at USD8,617, it stands as the third richest as well, but behind its smaller neighbors and once brothers Singapore and the oil-rich Brunei. It is the second largest producer of palm oil, third largest producer of natural rubber, and has the largest Islamic capital market in the world.

In terms of governance and political form, there are not many differences between the two countries. Malaysia and Singapore are both governed by democratically elected representatives and both uphold common universal values and human rights. Both have a prudent and sound economic and social policies, which are formulated to govern the various ethnics which made Malaysia and Singapore as their home.

The challenges faced by both countries could be deemed as reasonably similar, as both countries are trying to find the right balance for equitable growth across all races, while maintaining fair economic and social policies. For example, since the racial riot in 1969, Malaysia has adopted a positive discriminatory stand in favor of the Malays to increase the ethnic's participation in the country's economy, while Singapore has been to dependent on foreign labor to maintain high sustainable growth rate, in the expense of its very own delicate social fabric.

Actually, through the re-unification of Malaysia and Singapore, several economic and social problems which the neighboring countries are currently facing could be managed and handled better than if they were to stay separated as of now. For example, Singapore's labor shortage could as well be overcome by the larger labour force of which Malaysia has, while skilled labor currently based in Singapore could be utilised by Malaysian companies as well.

In terms of ethnic proportion, Singapore has a majority Chinese population at about 60% to 70%, while Malaysia has a majority Malay/Bumiputera population of about the same percentage. The increase in Chinese population would not make any major disruption to the social fabric in Malaysia, as it has already a large chunk of ethnic Chinese population. Although ethnic Chinese comprised about 2/3 of Singapore's population, that is actually only about 4.2 million additional Chinese population in absolute number. Malays would still be the largest ethnic in a reunified Malaysia at about 16.8 million in absolute number.

Economic and political policy, such as ethnic preferences in Malaysia and meritocracy and survival of the fittest in Singapore could actually be reconciled. In fact, Malaysia's ethnic preference policy is not blatantly used that it disregard merits at all cost. Meritocracy is still a prerequisite in Malaysia and ethnic preferences is just a tool to re-balance economic growth across all ethnics. Singapore's expertise could be tapped to bring in the culture of merits in Malaysia, and through time, ethnic preference could be dismantled, given strong political will by the federal government.

With the abundance of natural resources Malaysia is endowed with, and the greater population that it has compared to Singapore, could actually bring in more economic prosperity to Singapore. Already, Malaysia and Singapore is regarded by foreign investors as a single market, whereby both countries are the largest trading partner to each other. Malaysia exported raw materials such as crude oil and palm oil to Singapore to be refined (notwithstanding the fact that Malaysia too has a significant refineries) and re-exported to other countries in the region, for example.

(to be continued)