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Sime Darby ready to grab M&A opportunities

Covid-19 pandemic has slowed things down and there are no deals on the cards currently, says group CEO

22 May 2020 / 11:35 H.

PETALING JAYA: Sime Darby Bhd is ready to take advantage of merger & acquisition (M&A) opportunities that may arise as valuations are under pressure due to the uncertainty fuelled by the Covid-19 pandemic, according to its group CEO, Datuk Jeffri Salim Davidson.

He noted there might be opportunities for the group in China, as it has a sizeable motor operation in the market there which has provided the group with good profits and returns.

“Frankly, we want to grow there, I think there is the opportunity to acquire other dealership groups who are maybe a little bit distressed,” Davidson told the media during its virtual third-quarter (Q3) results briefing yesterday.

“Fortunately, we have the cash available and the ability to gear up and it is a good time to embark on M&As.”

As of March 31, Sime Darby had a gearing of 0.38 times and RM2.1 billion in bank balances, deposits and cash.

While there have been acquisition opportunities that came up from time to time, there are no deals on the cards currently, Davidson said,

“We have a couple of deals that we are looking at, but the pandemic situation has slowed things down and I could not fly out to negotiate on a deal,” he said.

Therefore, deals might not get concluded in the next three to six months.

In the previous year, the group concluded two major acquisitions – the Gough Group in New Zealand and three Trivett car dealerships in Sydney, Australia.

Sime Darby group chief strategy officer Datuk Thomas Leong Yew Hong said the conglomerate needs time to integrate the acquisitions properly.

“However, we will continue to be on the lookout for assets that have the right fit and strategic value to our core businesses in motor, industrial and healthcare,” he said.

Sime Darby posted a 48.2% drop in net profit for the third quarter ended March 31 to RM115 million, from RM222 million, due to lower revenue and profits from the group’s industrial and motors divisions in Greater China, despite gains in its Australian industrial operations.

Revenue dipped 1.6% to RM8.43 billion, from RM8.57 billion previously.

As for the group’s performance in the coming fourth quarter, Davidson expressed caution due to the impact of Covid-19 on its operations.

For the group’s motor division, he highlighted that its operations in China have bounced back relatively quickly, as sales have almost returned to normal levels.

Davidson stated that its car sales have benefited from the “revenge shopping” phenomenon, as con-sumers have gone out and purchased cars after the lockdown was lifted,

“But the rebound in places like Malaysia, Singapore, Australia and New Zealand will be a little bit slower,” he said.

As for its industrial business, Davidson noted that its operations in China have rebounded quite strongly as the government has gone ahead with infrastructure projects as a means to pump prime the economy.

The group’s operations in Australia have also remained fairly steady as the government has deemed the mining industry as essential and therefore it has not been affected as much by pandemic containment measures.

“Although the contributions of the industrial division in Malaysia and Singapore are smaller, it has struggled with the effects of the pandemic,” said the group CEO.

Davidson explained that this is due to the fact that a lot of construction projects in Malaysia have been put on hold due to the Covid-19 pandemic and the logging business has shrunk significantly.

As the group’s Singapore operations are closely related to the oil & gas industry, with the prevailing low oil prices there is not going to be much activity in the shipyards in the country.

Datuk Thomas Leong Yew Hong.

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