SIME’s alleged losses ‘not so big’

Sime Darby Bhd yesterday said it still expects to remain in the black in its financial year ended June 30, 2010, disputing an online news portal report that it could face a potential loss of RM2 billion to RM2.5 billion.

In a statement yesterday, the world’s largest listed oil palm planter by landbank, said the group would be announcing its FY10 results towards the end of August.

“Sime Darby would like to clarify that based on its best estimate, it still expects its results for FY10 to be in the black,” it said.

Sime Darby’s share price hit its one-month low of RM7.48 as news of the alleged impending large losses was made public.

“The alleged figures of RM2 billion to RM2.5 billion are largely inflated,” a company official had earlier told The Edge Financial Daily, without commenting on Sime Darby’s expected financial performance.

On June 14, chairman Tun Musa Hitam had said despite the cost overruns, the group would be profitable in the fiscal year ended June 30, 2010.

Analysts covering the stock also concurred, saying that although it was commonly expected that further provisions would arise, especially for the Bakun project, a RM2 billion net loss appeared to be on the high side.
“We understand the Qatar Petroleum and Marine projects have already been delivered, whereas the Maersk Oil Qatar project and Bakun project are 96% completed,” said an analyst.

The analysts added that a net loss of RM2.5 billion would mean further provisions of almost RM4 billion in store.

On any further losses, RHB Research said it was encouraged to note that Sime’s oil & gas order book was now at RM2 billion. However, the bids were put in under the previous management.

“Although management has targeted gross margins for these projects to be around 10%, we are sceptical of this target as we are wary that the previous management may have potentially under-priced its project costs in order to win the contract.

“We understand that Sime’s bid for the second project was quite a lot lower than the second lowest bid. Should Sime not complete these projects within budget, there could be a risk of more provisions in the future,” said the research house.

However, RHB Research added that Sime Darby was aware of this risk and was putting in place tighter controls to try to alleviate the risk.

CIMB Research and RHB Research have forecast net profit for the conglomerate of RM1.4 billion to RM1.5 billion, respectively, for FY10.

To recap, Datuk Seri Ahmad Zubir Murshid was asked to take a leave of absence following huge cost overruns and project losses at its energy and utilities division.

Felda Holdings Bhd group managing director Datuk Mohd Bakke Salleh was appointed president and group chief executive-designate of Sime Darby in the middle of July.

For the first nine months to March 31, 2010, Sime Darby’s energy and utilities division reported an operating loss of RM1.02 billion after a RM964 million provision made in the third quarter (3Q). As of March 31, 2010, a total of RM1.3 billion in provisions have been made.

Sime Darby posted a net loss of RM308.63 million in 3Q versus a net profit of RM150.57 million a year earlier, marking its first net loss since its mega-merger, which was completed in 2007.

For the cumulative nine months, the conglomerate reported a net profit of RM804.21 million. The results of Sime Darby’s forensic audit are expected to be announced by end-August.

Sime Darby closed at RM7.52 yesterday, falling 18 sen or 2.3%. The stock traded between RM7.48 and RM7.70 yesterday, on volume of 12.72 million shares.


by Koo Jie Ni