(From left): Sime Darby group chief strategy officer Datuk Thomas Leong, group CEO Datuk Jeffri Salim Davidson, group CFO Mustamir Muhamad and MD of motors division Andrew Basham (Photo by Shahrill Basri/The Edge)

KUALA LUMPUR (Feb 23): Sime Darby Bhd anticipates a potential earnings catalyst in the form of China's reopening and subsequent recovery in 2023.

During the group’s briefing on its financial results for the second quarter ended Dec 31, 2022 (2QFY2023) held on Thursday (Feb 23), Sime Darby group chief financial officer Mustamir Muhamad noted that China’s recovery post-reopening serves as a key earnings catalyst for the group’s industrial and motors divisions.

He continued that in January 2023, China effectively ended a ban on Australian coal which should see higher demand for the group’s industrial equipment as Australian coal miners begin ramping up operations to meet China's steel mills’ coal demand.

Elevated commodity prices of coal should also drive the higher margin heavy equipment product support.

“China remains our largest revenue generator, and we remain confident on the long-term prospects of the market,” Mustamir said.

As for its motors business, Mustamir noted that with China’s reopening and normalisation of the supply chain, the group hopes to see an improved performance for its car retail operations.

However, Sime Darby chief executive officer Datuk Jeffri Salim Davidson noted that it is too early to tell whether earnings normalisation for its motors division in China will kick in this year or later in the second half of calendar year 2023 (1HFY2024).

“It is a question of how long it is going to take for people to get confident, to go out into the streets and start buying cars again,” he said.

2Q net profit up 13% on one-off gain from disposal of Weifang Port; declares three sen dividend

The weaker motors division contributed to Sime Darby’s 27.2% drop in 2QFY2023 core net profit to RM251 million from RM345 million a year earlier.

However, headline net profit registered a 12.75% climb, on the back of completing its exit from its logistics business. It posted RM389 million net profit in the latest quarter from RM345 million previously.

According to the group’s filing, a one-off gain of RM147 million was booked from the disposal of Weifang Port in November 2022. Earnings per share rose to 5.7 sen from 5.1 sen previously.

Quarterly revenue increased 7.62% to RM11.29 billion as compared to RM10.49 billion in 2QFY2022. Sime Darby declared a first interim dividend of three sen per share, with an ex-date on March 9, payable on March 31.

“Our industrial division was the key contributor for the quarter under review, led by our Australasian operations which delivered higher profits,” said Mustamir, adding this was driven mainly via organic growth from the parts segment in Australia, as well as the engine business in Singapore.

Touching on the motors division’s weak performance, Mustamir explained that an automotive supply-demand mismatch in China resulted in price discounting, which led to a revenue decrease of 14.2% to RM151 million versus RM176 million previously.

For the six months ended Dec 31, 2022 (1HFY2023), Sime Darby logged a 2.58% rise in net profit to RM596 million from RM581 million a year prior, on an 11.11% increase in revenue to RM23.47 billion versus RM21.13 billion.

Strong demand for EV; charging infrastructure push

Touching on its electrical vehicle (EV) business — Sime Darby is the distributor of the BYD brand, whose EVs are well received by the market — Jeffri noted that the demand across various EV models has been strong.

This signifies the market’s readiness for electric mobility, and is “a positive step towards Sime Darby’s goal of becoming the leader in EV”, Jeffri said.

Sime Darby group chief strategy officer Datuk Thomas Leong posited that the implementation of EV charging infrastructure will play a significant factor towards EV adoption and demand.

He said the EV charging industry is going to be a high-growth space, supported by the Malaysian government’s target to have 10,000 charging points by 2025.

Tapping on the opportunity, Sime Darby launched its own wholly owned subsidiary last month called KINETA, which supplies, stores, maintains and installs EV chargers.

With all kinds of players coming into the market, KINETA will see stiff competition including by the industry’s big players such as Petroliam Nasional Bhd’s Gentari Sdn Bhd and Tenaga Nasional Bhd’s TNBX Sdn Bhd.

Shares in Sime Darby ended two sen or 0.87% lower at RM2.29, giving the group a market capitalisation of RM15.61 billion.