WEIFANG (June 15): Sime Darby Bhd has committed to invest RM1.4 billion (2.8 billion yuan) over the next three years to grow its port operations in Weifang, Shandong province in China.
Sime is also mulling a further RM350 million investment for its Weifang Sime Darby Port, subject to economic factors, the group said in a statement on Thursday.
The bulk of Sime's additional investment in Weifang port is expected to go into doubling the seaport's annual handling capacity over the next five years.
It has drafted a five-year development plan to more than double Weifang port's annual capacity to 50 million tonnes by 2017 from the current 13 million.
By 2017, Sime Darby also expects to have a total of 23 berths at the Weifang seaport, double the current 12 berths in operation.
Sime on Thursday signed MoUs with five companies that have committed to use Weifang port's facilities. They are Downstream Logistics BV, Shandong Luzhong Distribution Co Ltd, Chengshu Westerland Warehousing Co Ltd, Huadian Cooporation Weifang Power Generation Co Ltd and DHL Global Forwarding Management (Asia Pacific) Pte Ltd.
Sime also signed a MoU with the People's Government of Weifang City for the expedition of all administrative processes relating to the port.
The Weifang Sime Darby Port sits about 50km away from Weifang City in the central Shandong Province and is one of several ports in the Bohai Sea economic belt.
Sime Darby has already invested about RM1 billion in its ports and utilities business in China since its entry in November 2005.
Apart from Weifang port, Sime owns three river ports in Jining, Shandong province and two water treatment plants in Weifang.
Speaking during the MoU signing ceremony at Weifang port on Thursday, Sime Darby chairman Tun Musa Hitam pledged that the Sime Darby board would explore other areas for potential investment in China, aside from port operations.
"The idea is to go into projects which we think in the long term can stay and bring benefit to both sides," Musa said.
The group's business activities in China are in plantations, energy and utilities (E&U), industrial and motors.
Sime Darby's China operations have doubled profit before interest and tax to RM600 million in 2011 from RM300 million in 2010.
Revenue and earnings from Weifang Sime Darby Port, meanwhile, have doubled over the five-year period to RM90 million and RM50 million respectively in 2011.
Sime Darby China's head of ports Khor Bean Tatt told reporters on Thursday that the Weifang port would by year-end expand capacity to handle containers in addition to the bulk and cargo volumes it handles.
The Weifang port currently handles over 30 types of cargo including coal, petroleum, grain, raw salt and liquid products.
Sime Darby is planning to start container handling at its Weifang port with an initial capacity of 400,000 TEU (20-ft equivalent units), Khor said.
By revenue, the E&U division is the fifth largest contributor to Sime Darby's total revenue after the motors, plantation, industrial and property divisions.
For the financial year ended June 30, the E&U division's revenue rose 14.3% y-o-y to RM1.096 billion from RM959.5 million. The division posted operating profit of RM240.5 million compared with an operating loss of RM414 million a year ago.
However, for the nine months ended March 31, Sime Darby's E&U division's profit before interest and tax was weighed down by its China utilities business.
In a recent filing, Sime said its E&U division's 9MFY12 operating profit rose 64% y-o-y to RM280.8 million largely due to recognition of deferred revenue from its Malaysian power plant business.
"Profit from port operations in China declined by 7.1% compared to the prior period, affected primarily by the competition from other port operators and higher overhead costs including the pre-operating expenses for Jining South Port," Sime said in the notes to its financial results.
This story appeared in The Edge Financial Daily on June 15, 2012.