• Sime Darby Plantation (SDPL) has completed the disposal of its Liberia operations to Mano Palm Oil Industries for US$1.00 plus an earn-out payment.

• The earn-out payment is determined by the average CPO price and production of the Liberia operations from year 2023F onwards.

• The earn-out payment will be payable quarterly over a period of eight years from April 2023 onwards.

• We view this development positively. We believe that operating conditions in Liberia are challenging due to the poor infrastructure and different work culture. As SDPL exits Liberia, the group will no longer have to recognise losses in the country in the future.

• There is no gain or loss on disposal except for US$1.00 as SDPL had already written off its investment in Liberia to zero. We believe that SDPL has recognised impairments of almost RM585mil for its investment in Liberia in the past three years.

• The Liberia unit recorded a loss of RM55mil (excluding impairment of RM256mil) in 9MFY19 compared with a loss of RM46mil in 9MFY18.

• SDPL has planted areas of about 10,263ha in Liberia. Out of these, 9,975ha are mature. Average age of the oil palm trees in Liberia is 6.4 years old. The Liberia unit recorded a 20% YoY increase in FFB production in 9MFY19.

• We maintain UNDERWEIGHT on SDPL with a fair value of RM4.90/share.

Source: AmInvest Research - 17 Jan 2020