• On 1 July 2019, Sime Darby Plantation’s New Britain Palm Oil Ltd (NBPOL) entered into an agreement with Hastings Deering Ltd, which is a unit of Sime Darby Bhd.

• Under the agreement, NBPOL will make direct payments in USD to Hastings’ offshore suppliers after NBPOL receives payments in Papua New Guinea Kina from Hastings at the agreed exchange rate.

• The Central Bank of PNG gave approval to NBPOL to make direct payments in USD to Hasting’s offshore suppliers in June 2017.

• The arrangement is not new. It started last year. The agreement arose as there is a limited availability of USD in Papua New Guinea (PNG).

• Hastings imports goods from overseas suppliers in USD but sells its goods locally in PNG. On the other hand, NBPOL exports its palm products and receives payments in USD. Hence, NBPOL does not face problems sourcing USD.

• We are neutral on this. Essentially, NBPOL is acting like a money changer to Hastings. The impact on NBPOL’s earnings is not significant.

• The amount received from Hastings for the period of November 2019 to February 2020 was PGK34.7mil or RM42.1mil. This consisted of the payments to Hasting’s suppliers of RM40.0mil and a margin of RM2.1mil derived from the agreed exchange rate.

• We maintain UNDERWEIGHT on Sime Darby Plantation with a fair value of RM4.90/share.

Source: AmInvest Research - 9 Mar 2020