Sime Darby Group, the diversified Malaysia’s conglomerate, is rapidly becoming a significant regional automotive player following an aggressive campaign of acquisitions and organic expansion over the last two years. Established in 1910 as a rubber plantation company, the Sime Darby Group (SDG) now encompasses around 200 companies operating mostly in Asia and employing some 32,000 people, writes Tony Pugliese.
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Consolidated net revenues grew by 25% in the year ending in June 2005 to RM 18.6 billion (US$ 4.8 billion), due largely to strong growth in its automotive business. Having sold off a number of non-core businesses – under the leadership of Datuk Ahmad Zubir Murshid since he was appointed as CEO in June 2004 – SDG is now more focused on its core strengths, though still quite diversified. Group pre-tax profits rose just slightly, to RM 1,364.8 million, reflecting the restructuring recent activity.
In addition to automotive and heavy equipment divisions, Mr Zubir sees these the plantations, property development, insurance, energy and trading divisions as core activity operations. Most of these activities are largely domestically focused; vehicle assembly and distribution, and the distribution of heavy equipment, are seen as the two most promising divisions in terms of growth – both at home and abroad. Combined, these two divisions account for almost two-thirds of the group’s business and their importance for the group will likely continue to grow.
Motor vehicle distribution and assembly is now by far SDG’s largest division, accounting for 38% of group revenues in the year ending in June 2005. Revenues grew by 33% to RM 7.1 billion, thanks in large part to the acquisition of Hyundai-related businesses in Malaysia in 2004. SDG spent RM 1 billion last year in acquiring a 99% stake in Hyundai-Sime Darby Bhd, a 51% stake in Hyumal Motor Sdn Bhd and a 51% stake in vehicle assembler Inokom Corp Sdn Bhd last year.
Hyundai Motor’s overall market share in Malaysia has increased from 2% to 7% in the last three years. Vehicles sold through SGD reached 20,200 units last year. For this year, the target has been raised to 24,000 units and a further strengthening of the CKD range should help it consolidate the recent gains.
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By GlobalDataHyundai Motor has another partner in Malaysia – Oriental-Hyundai Sdn Bhd – that assembles and distributes the Sonata, Accent and Elantra models. It sold around 12,000 units this year and claims its plant in Johor Baru, at the southern tip of the Malaysian peninsula, has a capacity of 50,000 units per year.
Inokom Corp, one of the country’s national car companies, makes the Hyundai Atoz, the Matrix MPV and a light truck. Hyundai-Sime Darby has sole distribution rights to these models in Malaysia as well as to all Hyundai CBU imports.
SDG said it will expand capacity at the Inokom plant from 20,000 to 30,000 units per year by the end of 2005 and will add the Tucson SUV to its line-up CKD line-up in 2006. A revised Getz model will also go into production at the plant and the new Grandeur will be launched in the current financial year, according to a Malaysian based automotive analyst.
Mr Zubir is looking for continued growth the automotive division on a number of fronts: on the back on Hyundai Motor’s business; by strengthening the dealer and aftersales network across all brands; and as a result of overseas expansion. Domestically, it has Land Rover, Ford, BMW and more recently Alfa Romeo outlets.
SDG’s CEO recently described the vehicle distribution business to the local press as a “volume game”, adding, “with margins ranging between 4% and 6%, business efficiency and a high turnover are needed to generate the required earnings”. He insists that vehicle distribution remains an attractive business, despite the low volumes.
Growing internationally
SDG’s motor division has a growing international footprint, comprising dealers and distributors in Malaysia, Singapore, Hong Kong, Macau, China, Australia, New Zealand and Thailand. The brands sold include Peugeot, Volvo, Rolls, Royce, Land Rover, BMW and Mini. Mr Zubir recently described SDG as the largest independent BMW dealer group in Asia and one of the top three in the world. In June last year, Sime Darby acquired Jardine Cycle & Carriage Ltd’s vehicle distribution business in New Zealand at a cost of RM 204 million.
In September 2005, SDG established a new wholly owned subsidiary in Australia, called Sime Darby Motor Group (Australia) Ltd which will overlook its Australian automotive operations. This preceded the announcement in the same month of the A$37m acquisition of PPT Investments Pty Ltd, the New South Wales dealer group sells Ford, Hyundai, Honda, BMW, Nissan, Chrysler, Suzuki and Daihatsu branded vehicles. PPT Investments turnover last year was A$256.4m. Sime Darby Automobiles Ltd, the Australian Peugeot dealer, which has now been consolidated into the group.
SDG plans to grow organically, by expanding the number of its dealer outlets and by strengthening its aftermarket operations. It intends to expand its share of the vehicle distribution business in all its markets, especially in Malaysia, New Zealand and Australia.
Mr Zubir said SDG would like to partner with BMW and Hyundai to become a production base for domestic and regional distribution, following the release of the new Malaysian National Automotive Policy Framework (NAPF) earlier this month. Hyundai Motor has been mulling a high volume production plant for South-East Asia, though so far a decision has not been made.
Tony Pugliese
