Sime Darby not ruling out hike in car prices after new SST rate kicks in

KUALA LUMPUR: Sime Darby Bhd could increase car prices, following the upcoming sales and services tax (SST) hike.

Group CEO Datuk Jeffri Salim Davidson noted that since the SST rate hike has not been imposed, the group will likely use the “wait and see” approach and adjust accordingly to the situation.

Last year, during the tabling of Budget 2024, Prime Minister Datuk Seri Anwar Ibrahim announced that the SST rate in Malaysia will increase to 8% from 6%, albeit would not include food and beverages or telecommunications. It will be imposed starting March 1.

“The theory is that car prices will go up by 2%. We have other factors that come into play so it is difficult to say the profit is 2%. But the underlying demand for cars in Malaysia is still strong. So we will see the impact,” Jeffri told a media briefing on Sime Darby’s financial results for its second quarter ended Dec 31, 2023 (Q2’24) yesterday.

Jeffri does not discount the possibility that car prices would rise if factors involving parts, components in the car manufacturing were to also increase.

Concurrently, group CFO Muhammad Noor Abdul Aziz pointed out that the outcome of the SST will not just affect the group, but also the whole industry.

“This sales tax increase also applies to everybody, and to all the automotive players. So, we see this as a cost of doing business and it is applicable to everybody and it’s a new playing field ... that’s how we view it. In terms of demand, we’ll have to manage (the) market forces,” he added.

In addition, he shared that Sime Darby’s compulsory acquisition of a 100% stake in UMW (Holdings Bhd is expected to be concluded by end-March 2024. As at Jan 31, 2024, Sime Darby already held 98.86% of the total shares in UMW Holdings.

With the acquisition of UMW Holdings, Jeffri said that Sime Darby would be adding two leading mass market brands, mainly Perodua and Toyota into its portfolio, which would broaden its earnings and unlock further value for the group.

“Work is ongoing to ensure a smooth and seamless integration of UMW into the Sime Darby family,” said Jeffri, adding that the group has decided to treat UMW Holdings as its third pillar after industrial and motor division.

“Under UMW Holdings, there are Toyota and Perodua. We are running that with a separate management team. We need to spend time and understand the wants and the needs of our respective partners such as Daihatsu to make sure it works best for Sime Darby,” he remarked.

Meanwhile, its industrial and motors division in China recorded a lower revenue in its first half of 2024 (H1’24) with the former registering RM1.22 billion compared with RM1.42 billion in H1’23, while the latter recorded RM7.97 billion in H1’24 from RM7.25 billion for the same period in the year prior.

He pointed out that the group has made headway in the China market for the past 30-40 years, which has proved to be profitable for a significant number of years.

However, Jeffri noted that the group is currently undergoing a “trough” phase in the China market and will remain resilient until the China’s economy improves as per the usual business cycle.

“We’ll just have to live through it, we are managing costs ... but we will hang in there because we believe that the Chinese economy will pick up and they will come back (up). Its a matter of waiting it out for a bit,“ he said.

“There’s no possibility for us leaving the China market, it’s been a very profitable market for us. We live in a very cyclical business. If you look at our (financial) history our numbers (are) strong. You’ve got to manage the troughs, where you have to manage costs and losses and all that.

“When you are the peak, you (will also encounter) problems such as wage increases and staff shortage,“ he said.

In regard to China, the group will continue to manage the situation and expects the trough phase to continue for “another one or two years”.