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Nikkei Markets

Sime Darby's net profit rises on strong equipment sales

Robust demand for mining equipment in China to help sustain earnings

Apart from the sale of industrial equipment, Malaysia’s Sime Darby also assembles automobiles and retails mass-market and luxury brands such as BMW and Porsche.   © Reuters

KUALA LUMPUR (Nikkei Markets) -- Malaysia's Sime Darby, an automotive-to-healthcare conglomerate, said Tuesday its net profit for the fiscal first quarter rose 9.3% on year, thanks to higher equipment sales in Australasia and China.

Net profit for the quarter ended Sep. 30 stood at 246 million ringgit ($58.84 million) from 225 million ringgit year ago, it said in an exchange filing. Quarterly revenue rose 7.1% year-on-year to 9.48 billion ringgit compared with 8.85 billion ringgit.

"The industrial division's result continues to be supported by the robust mining industry and increased infrastructure spending in Australia," the company said in statement. Its Gough Group acquisition is expected to contribute to the division in the current financial year, it added.

Sime Darby's prospect is closely tied to coal prices as it derives bulk of its profits from sale of equipment to the mining industry in Australia. The company bought Gough Group that has Caterpillar dealership and has interests in the transport and materials handling business in New Zealand and Australia.

Prices of coal-used in electricity generation, steel production, and cement manufacturing - have been falling this year despite resilient consumption in Asia, particularly in China. Year-to-date, prices for Australian thermal coal have fallen more than one-third to $67 per ton as on Nov. 1.

China, the world's top producer and user of coal, is the second-biggest market for Sime's industrial division that also sells heavy machineries to the construction industry. Despite pollution concerns, demand has mostly been robust as coal currently accounts for more than half of China's energy mix.

Analysts said Chinese coal producers have remained profitable at current prices despite the slump, which continued to support demand for new equipment and parts.

"If the miners remain profitable, I don't see them cutting down or slowing their operations," said Hong Leong Investment Bank's Analyst Daniel Wong. In China, margins at automotive division have been expanding in absence of aggressive discounting, in part due to robust demand, he added.

Earlier this month, Sime Darby's Chief Executive Jeffri Salim Davidson said coal mining industry remained strong and that the company has yet to experience any direct impact from the U.S.-China trade war.

Apart from the sale of industrial equipment, Sime Darby also assembles automobiles and retails mass-market and luxury brands such as BMW and Porsche. The motors division's business environment remains competitive as China grapples with softer demand and market sentiment remains cautious, the company cautioned.

However, it is banking on upcoming model launches to boost sales in the fiscal second quarter, although ongoing mass unrest and trade tensions continue to dampen consumer spending in Hong Kong.

Shares of Sime Darby rose 0.4% to 2.31 ringgit apiece on Tuesday and outperformed the weak broader market following the earnings announcement. The benchmark FTSE Bursa Malaysia KLCI ended 0.5% lower.

--Jason Ng

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