Jeffri said the acquisition is expected to be completed by the fourth quarter of 2023 and its revenue contribution will be about 37% post-acquisition.
PETALING JAYA: Sime Darby Bhd
’s acquisition of UMW Holdings Bhd from Permodalan Nasional Bhd (PNB) for RM3.57bil cash or RM5 per share will allow Sime Darby to scale up its presence and strengthen its Malaysian footprint in the automotive and industrial sector.
Its group chief executive officer Datuk Jeffri Salim Davidson said Sime Darby acquired a 61.2% stake from PNB and will be making a mandatory general offer (MGO) for the remaining 38.8% stake, with the aim of delisting UMW from Bursa Malaysia.
The cost of the acquisition then will rise to RM5.84bil for all of UMW and will be funded by borrowings and internal funds.
“UMW is a strong player in the local scene and has strong partnerships with global players, which is similar to Sime Darby,” he told reporters during Sime Darby’s final quarter and full-year financial performance briefing yesterday.
According to Jeffri, UMW’s portfolio includes the automotive, equipment, aerospace and manufacturing and engineering (M&E) divisions.
It represents Toyota in Malaysia with a strategic stake in Perusahaan Otomobil Kedua Sdn Bhd (Perodua).
Commenting on the acquisition’s rationale, Jeffri said the deal will not only give it a full presence across the automotive spectrum, but will also balance out any geopolitical risks from its two key markets, China and Australia as the contribution from Malaysia, China and Australia will be a third each.
On its automotive front, Sime Darby will be able to add mass market automobiles like Toyota and Perodua to complement its existing luxury portfolio such as BMW and Porsche.
“With the acquisition, the group will become the leading industry player in Malaysia, by capturing more than 50% of the local market share,” he said.
Sime Darby will also gain access to Toyota’s ecosystem, as UMW’s role in assembling the car is an important asset, he added.
Additionally, Jeffri noted the deal will assist Sime Darby in building up capabilities along the value chain, while strengthening the used-car, after-sales and assembly businesses.
“Lastly, the deal will bring Toyota’s forklift, Kiko, into our portfolio, creating exposure into the the material handling business, which is a growth proxy to the eCommerce warehousing segment.
“This will add another dimension to our industrial division,” he added.
Jeffri said the acquisition is expected to be completed by the fourth quarter of 2023 and its revenue contribution will be about 37% post-acquisition.
“We are rebalancing our earnings in terms of regional exposure and are confident that this acquisition will be beneficial to the group,” he explained.
The group also plans to fund the acquisition through the divestment of its non-core businesses, namely, its healthcare segment as well as the disposal of its 8,000-acre land in Labu, Negri Sembilan.
Meanwhile, for the final quarter ended June 30, 2023 (4Q23), Sime Darby reported a revenue of RM13.3bil, rising 22.4% compared to the RM10.9bil recorded in the previous corresponding quarter.
Net profit also more than doubled to RM622mil from the RM278mil reported in 4Q22.
Sime Darby group chief financial officer Mustamir Mohamad attributed the rise in the earnings to the group’s industrial division.
It reported almost a 34% year-on-year (y-o-y) growth in its core earnings to RM375mil for the quarter under review.
“This was mainly driven by higher parts revenue, which was supported by parts price increase and higher demand for maintenance of mining equipment,” he explained.
On the motors front, earnings increased by 104% y-o-y to RM555mil in 4Q23, largely due to a gain on the disposal of properties and the robust performance from the Malaysian operation.
However, ripping off the disposal, core earnings for the division improved about 38% y-o-y in 4Q23 to RM376mil.
Mustamir also highlighted that the group’s growth in profits for the quarter was partly due to the dividend income of RM194mil compared to RM48mil in the previous corresponding quarter.
Additionally, he acknowledged that the group was grappling with some challenges in its motor business in China due to a price war and a sluggish economy, which has taken a bite on its margins.
However, moving forward, he expects the situation in China to improve gradually.
For financial year 2023 (FY23), Sime Darby saw its revenue growing by about 13.6% y-o-y to RM48.3bil. Net profit improved by about 32% to RM1.46bil from RM1.1bil in FY22.
The company’s revenue breakdown is as follows: China accounts for 35%, South-East Asia contributes 12% and Malaysia represents 16%, while Australasia makes up the largest portion at 37%.
Notably, Australasia makes a substantial contribution to the core profit, accounting for 59%.
Mustamir said the growth is testament to the group’s resilience, amidst the challenging market environment.
Included in the results for continuing operations in the current year were gains on disposal of properties and higher dividend income as mentioned above.
Excluding these, the group’s net profit from continuing operations would have been 13.8% lower, resulting from reduced profits due to higher finance costs and the headwinds facing its operations in China.
However, this decline was partially mitigated by higher profits from industrial operations in Australasia, Mustamir pointed out.
Looking ahead, the group’s strategic focus involves bolstering its core business, particularly its motor division.
Simultaneously, the company will emphasise its investments in the Australian market within the industrial segment, where it holds a significant order backlog primarily from mining and construction projects.
Sime Darby declared a dividend of 10 sen per share for 4Q23, bringing its FY23 dividend to a total of 13 sen a share, one-and-a-half sen higher than the 11.5 sen per share declared in FY22.
