KUALA LUMPUR: Industrial division could be the main earnings contributor to Sime Darby Bhd, given the strong commodity price cycle that will boost demand for mining equipment and services sales.
The conglomerate said more investments were likely to be made into metallurgical and thermal coal mining, particularly in industrial business in Australia.
Group chief executive officer Datuk Jeffri Salim Davidson said industrial and motors businesses would still be Sime Darby's main stead, riding on two powerful trends in Asia.
In addition to strong commodity price leading to stronger demand for mining equipment and services sales, the other mega trend is the growing affluence of consumers in China and their penchant for luxury cars.
"The motors business also capitalises on this, and we continue to expand our network of dealerships there," he told the New Straits Times.
Jeffri said the group anticipated its profit to be primarily contributed by its core businesses of industrial and motors, which had proven in the past to be resilient due to diversified geographical spread across 19 countries.
Jeffri said Asia was poised to be the world's fastest growing economic region, adding that the industrial segment mostly benefitted from the expansion that would spur demand for construction and mining equipment and services.
Nonetheless, he said Sime Darby expected a more challenging for the year ending June 30, 2022 (FY22) due to headwinds in terms of infrastructure spending in some markets it operated in.
"However, economies are pushing hard for a reopening, and this should afford greater business opportunities for the group in the medium to long term," said Jeffri.
The group expects a sustained organic growth moving towards FY23, notwithstanding the ongoing challenges brought by the pandemic.
"The Omicron variant has been the proverbial spanner in the works while we were just starting to find our footing," he said.
Meanwhile, Jeffri said demand for luxury cars was still going strong despite travel restrictions curbing leisure travel overseas.
This has inadvertently caused the semiconductor chips shortage and supply chain disruptions as inventory was tight at best.
"We are confident that we have built a strong foundation to stand the test of time, short term external factors such as the global supply chain issues, Omicron outbreak and inflationary pressures are likely to test our mettle in the near term," he cautioned.
Nevertheless, he said the group performance for FY21 was "exceptional", not only due to a one-off gain of RM272 million but also the difference in the current operating environment.
"Over the years we have acquired a few businesses which have worked to fortify our operations.
"In FY19, we purchased Heavy Maintenance Group in Australia, while in FY20 we acquired New Zealand's Gough Group Ltd and three car dealerships in Sydney," he said.
Sime Darby's most recent acquisition was Salmon Earthmoving, a leading provider of heavy equipment rental services in Australia that services the civil construction and mining sectors.
"We expect this new acquisition to bring in between RM150 million and RM180 million to the group's revenue in FY22."
Meanwhile, he said the group's industrial order book was still strong, standing at RM3.3 billion as of September 30, 2021.
"Coal prices remain high and show no signs of dropping off. We expect this will spur continued investment in mining and as a result the equipment and services that we sell," he said.
Jeffri said Sime Darby would continue to grow its motors sales network, particularly in China, which could be the largest luxury market in the world.
"In FY21, we had 38 branches across nine provinces in China."
On the electric vehicle (EV) growth, Jeffri said this was certainly an area with much potential, especially in Malaysia, thanks partly to the incentives announced in 2022 Budget.
"Not to forget of course the foothold we have in the largest EV market in the world, China, where demand for EVs has really taken off.
"Last year about 15 per cent of new vehicle sales in China were EV.
"We have exposure to this not only via our partnerships with BMW and but also with Chinese EV brands such as BYD, NIO, Weltmeister and Li Auto."
Sime Darby is now a multinational with 90 per cent of the group's revenue generated from 18 countries in the Asia Pacific region, while only 10 per cent derived from Malaysia.
"Our focus on industrial and motors has seen us grow from strength to strength with world- renowned partners Caterpillar (industrial) and BMW (motors).
"Our revenue has grown from RM33.8 billion in FY18 to RM44.5 billion in FY21, while core net profit has grown from RM835 million in FY18 to RM1.25 billion in FY21."
"We managed this by first coming up with a Value Creation Plan at the start of our journey, where we developed initiatives to drive earnings, optimise cost, expand into new market and rationalise our portfolio," he said
Jeffri said the execution of these initiatives led to the more than 30 per cent growth in revenue and the almost 50 per cent jump in core net profit in FY21, compared with FY18.
"Revenue from our industrial business has grown from RM13 billion in FY18 to RM16 billion in FY21, while our motors business brought in sales of RM28 billion in FY21, from RM20 billion in FY18.
"We have grown to 203 branches across nine countries for motors and 152 branches across 16 countries for Industrial," he said.
Jefri said Sime Darby had been successful in extracting value from the divestment of non-core assets, which was a part of the group's larger plan to free up resources to grow its core businesses of industrial and motors.
"We have managed to execute more than 10 divestment deals. In fact, reflecting our commitment to our Value Creation Plan despite the challenging operating environment, two of our biggest deals thus far were brokered in the year the pandemic began in 2020.
"We completed the sale of our 30 per cent stake in Tesco Malaysia, finalised the staggered exit from Jining ports and the sale of our 11 per cent interest in Eastern & Oriental Bhd in FY21. We were able to monetise non-core assets to the tune of about RM700 million."
Additionally, the group had signed an agreement in October 2021 to sell 760 acres of land in Malaysia Vision Valley for RM280 million, which it would recognise in FY23.