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Nikkei Markets

Sime Darby plans more-than one billion-ringgit capex

Expects performance to improve after June quarter net profit rises 13%

Sime Darby, which spun off its plantation and property businesses into separate listed units in 2017, now mainly sells industrial equipment, assembles motor vehicles, operates ports and hospitals.   © Reuters

KUALA LUMPUR (Nikkei Markets) -- Malaysia's automotive-to-healthcare conglomerate Sime Darby said Tuesday it plans to ramp up capital spending this financial year amid signs of resurgent demand for industrial equipment despite lingering U.S.-China trade tension clouds export prospects.

Sime Darby has budgeted over one billion ringgit ($237.80 million) in capital expenditure for its financial year to Jun. 30, Chief Financial Officer Mustamir Mohamad said at post-earnings briefing. The company is looking at showrooms upgrade, plant expansion, maintenance for industrial unit and logistics business in China, he said.

"We are looking to gear up for more investment," he said.

The planned spending follows a nearly 13% year-on-year net profit increase in the fiscal fourth quarter thanks to higher contributions and margins at its industrial segment.

Net profit for the three months ended Jun. 30 totaled 184 million ringgit compared with 163 million ringgit over the same period last year, Sime Darby said in an exchange filing. Quarterly revenue rose 8.6% year-on-year to 9.32 billion ringgit from 8.58 billion ringgit.

Post earnings announcement, shares of Sime Darby turned higher and rose as much as 1% to close at 2.11 ringgit apiece, while the benchmark FTSE Bursa Malaysia KLCI ended 0.6% lower. The company also declared a special dividend of 0.01 ringgit on top of 0.07 ringgit second interim dividend, both payable on Oct. 31.

Sime Darby said it could top its performance in the just-ended year. Still, the global economic environment remains challenging amid protracted U.S.-China trade tensions and continued Hong Kong unrest, it added.

Trade war between the world's top two economies have intensified after President Donald Trump said he was ordering American companies to start looking for "an alternative to China" while readying additional measures after China imposed retaliatory tariffs on imports of U.S. goods.

China announced new tariffs of 5% and 10% on $75 billion worth of U.S. imports set to be implemented from Sep. 1 and Dec. 15. The move is in response to the Trump administration's plans to institute 10% tariff on $300 billion worth of Chinese imports.

Sime Darby, which spun off its plantation and property businesses into separate listed units in 2017, now mainly sells industrial equipment, assembles motor vehicles, operates ports and hospitals. The company also manages Tesco hypermarkets in Malaysia.

It is participating in a tender to supply vehicles to the Malaysian government and has submitted a bid to acquire Columbia Asia Hospital, Chief Executive Jeffri Salim Davidson said at the same news conference.

Outlook for industrial segment, which contributed most of the annual profits, remains "positive" despite a 13% reduction in order book in the year ended 2019, Sime Darby said.

"Early signs show that the industrial division will continue to take the lead in FY2020," the company said, noting growth in mining industry in Asia Pacific that would drive demand for both mining equipment replacement cycles and expansions.

For its motors division, Sime Darby expects the regional automotive market to remain competitive, while prospects at the logistics division remain clouded tracking global trade tensions.

-- Yimie Yong

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