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UPDATE 2-Malaysia's Sime Darby Q1 profit up 17 pct

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By Syed Azman

KUALA LUMPUR, Nov 26 (Reuters) - Malaysia's Sime Darby Bhd, one of Asia's oldest conglomerates, reported on Tuesday that higher palm oil prices helped first quarter earnings rise 17 percent from a year ago, but warned of tougher times ahead.

Sime has diversified businesses spanning plantations, property, tyre manufacturing, power generation, and car distribution for Ford and BMW in Malaysia, Hong Kong and Singapore, and Nissan in China.

Net profit rose to 214.1 million ringgit ($56.3 million), or 9.2 cents earnings per share, for the three months to end-September from 183.4 million, or 7.9 cents, previously. Revenue jumped 28 percent to 3.66 billion ringgit.

Although Sime was optimistic about its performance for the rest of the financial year, it warned that results might be hit by continuing pressure on its motor vehicle distribution unit's margins, the full implementation of ASEAN Free Trade Area (AFTA) for tyre products on January 1, and potential conflict in the Middle East.

"If the encouraging trend seen in the first quarter continues, there's a good chance full-year profit will beat last year's," Sime Group Chief Executive Nik Mohamed Nik Yaacob told a news conference.

WITHIN EXPECTATIONS

Analysts said the results were within expectations.

"The market is expecting 36 to 40 cents. If you annualise first quarter results, it'll come in at about 36 cents," said Frieda Koh of stockbroker K & N Kenanga.

"Plantations did very well. We are looking at even higher plantation results in the subsequent quarters. Most industry experts are looking at higher palm oil prices in the first half of next year," she said.

Sime's shares, suspended on Tuesday for the earnings announcement, last traded at 4.96 ringgit and are up 1.2 percent since the start of the year.

During the quarter ended September 30, pre-tax profit from plantations division surged to 63.2 million ringgit from 12.6 million in the previous quarter, accounting for a fifth of group pre-tax profit.

Average prices for palm oil and kernel were 1,376 and 727 ringgit per tonne respectively, versus 890 and 463 rinngit per tonne in the previous quarter, the firm said.

Nik Mohamed said stronger earnings from the heavy equipment division, particularly its Australia's Hastings Deering unit, also contributed to the better profit.

BMW FRANCHISE

But profit from the group's motor division fell to 72.4 million ringgit from 75.6 million in the same quarter last year, hit by poor margins from sales in Hong Kong and China.

Sime said it hoped to finalise the future of its BMW wholesale car franchise by the end of this year.

German automaker BMW AG plans to set up a company to handle the Malaysian wholesale business, with Sime retaining assembly and retailing rights. Sime wants to retain some interest in the wholesaling.

Sime currently wholesales, assembles and distributes BMW vehicles in Malaysia -- selling around 2,000 BMWs a year in Southeast Asia's largest passenger car market.

Nik Mohamed said Sime was seeking new franchises to minimise the impact of the partial loss of the BMW business.

"There has been progress. We are pursuing this aggressively," he added.

Motor vehicle distribution accounted for a third of the Sime group's annual turnover of 12 billion ringgit in the year to end-June 2002. Sime said its property division's profit also fell due to lower units sold during the quarter.

($1 = 3.8 ringgit)