Sime Darby Oils eyes global M&A, JVs

In addition to just selling to these markets, we want to be present in the market itself, says MD


Sime Darby Oils Sdn Bhd, the downstream unit of Sime Darby Plantation Bhd, is on an active merger and acquisition (M&A) drive to strengthen its footing in strategic markets, which includes purchase of foreign assets and joint ventures (JVs) with global players.

The expansion mode is in line with its plan to increase contributions to the parent company, Sime Darby Oils MD Mohd Haris Mohd Arshad (picture) told The Malaysian Reserve.

Mohd Haris said the company eyes a more active role in certain countries either by acquiring assets or setting up refineries in targeted markets, beyond conducting plain exports to businesses which reprocess crude oil for domestic retail markets.

“We are (currently) selling to the buyers. Say you’re an African refiner, you buy oil to process it and sell it. What might be interesting is for me to say to you, can we do some sort of a JV? Can we merge so that you have a guaranteed supply of oil and I have a foot in the local market operations?

“It’s the idea that in addition to just selling to these markets, we want to start participating in the market by being present in the market itself,” he said in an interview yesterday.

Mohd Haris said although options on the table include setting up new refineries and acquiring existing ones, M&A remains the easier and preferred route for Sime Darby Oils.

“We are (looking at M&A deals). There are a few that are certainly quite interesting for us,” Mohd Haris said, adding that these businesses will be focused primarily on refineries.

Without divulging into specific details, he said the company is eyeing smallto midsized deals which will allow it to be more nimble, as opposed to huge purchases similar to Sime Darby Plantation’s 2015 purchase of New Britain Palm Oil Ltd for RM5.4 billion.

“Rather than plonking one big investment in China, we should be looking at different markets and have a few tie-ups here and there, which also holds to spread our risks.

“What you’ll see is smaller tie-ups, JVs and acquisitions that we’ll do in different parts of the world,” Mohd Haris said.

However, the potential partnerships or M&A are more likely to happen over the long term, given that available assets are currently aplenty, but valuations remain unfavourable.

“They’re quite expensive, given where prices are at today. We have to look at something which gives us a quicker payback and with respectable returns. So far, we’ve not scanned the market thoroughly enough to see those opportunities yet.

“It’s not happy days today — it’s about making sure all hands are on deck. No slippages. Hopefully, if the market turns for the better, we may be at liberty to get our hands off deck and start focusing on expansion beyond what we’ve committed,” Mohd Haris said.

This year, the company’s focus is to complete organic expansions at existing assets as planned two years ago, while maintaining cost efficiency with lean operations, as well as managing customers well.

It has allocated RM400 million for expansion of its SouthEast Asian refineries, which include doubling biodiesel production capacity at the company’s Morakot Refinery pcl in Thailand from 60,000 tonnes per annum (pa) to 120,000 tonnes pa, and adding some 90,000 tonnes of processing capacity to the Langat Refinery’s current load of 300,000 tonnes pa.

The company is also at an “advanced stage” to look into establishing sales offices in the Middle East, after establishing a similar presence in North America recently.

Currently, 80% of Sime Darby Plantation’s earnings are derived from its upstream business, namely the production of crude palm oil (CPO) from some 600,000ha of land across five nations.

The remaining 20% comes from Sime Darby Oils, which has a global refining capacity of 3.8 million tonnes, consisting of two million tonnes for bulk refining and 1.8 million tonnes for specialty refining.

Sime Darby Plantation said earlier this year that it hopes to have a more balanced revenue share from its upstream and downstream segments in the longer term.

This would help bolster the firm against volatile CPO prices, which fell to a three-year low at the end of 2018 and significantly dragged the earnings of commodity stocks.

However, the downstream business is not without trouble either, with its biggest challenge being having subdued demand, due to “very high” inventories of vegetable oils including palm oil, soybean oil, rapeseed oil and canola oil.

“Although the downstream business tends to be more resistant to movements in price, we do see risk in that our sales or off-take are slowing. People are sitting on their hands — they’re not ordering as much, and we’re all fighting for the next buyer who appears in the market.

“There’s nothing that we can do for the short term, other than ensuring our customer service remains at its highest level. We’re fortunate in that with our customers, there is some stickiness because the oils we sell are certified sustainable, so buyers like Unilever and Nestlé SA will continue to buy from us,” said Mohd Haris.

The group also has an edge in the specialty oils business, as the products are tailored to buyers’ specifications, thus making it difficult for them to change suppliers.

Sime Darby Oils operates across 16 countries worldwide in trading, manufacturing and marketing of oils and fats products, palm oil-based biodiesel, nutraceuticals and other derivatives.