Investment Highlights

• We maintain BUY on Sime Darby Plantation (SDP) with an unchanged fair value of RM4.88/share. Our fair value for SDP is based on an FY22F PE of 22.0x. We ascribe a three-star ESG rating to SDP.

• SDP held a virtual briefing last Friday to provide updates on the WRO (Withholding Release Order) issued by the US CBP (Customs and Border Protection).

• SDP hopes that the Impactt team, which is based overseas, would be able to come to Malaysia to conduct estate visits as soon as possible. Currently, there is a 10-day quarantine period for overseas travellers that arrive in Malaysia. In the meantime, SDP would be implementing initiatives such as setting up passport cabinets in the workers’ houses and appointing workers’ representatives.

• SDP hopes to submit the assessment report on its palm operations in Malaysia to the US CBP in 1QFY22. Based on Top Glove Corporation’s experience, it may take the US CBP about six to seven months to make a decision. SDP would only be sharing a summary of the key findings of the assessment report with the public as most of the details are expected to be confidential.

• In respect of a recent news report that Malaysia would be allowing 32,000 foreign workers to enter the country in batches, we understand that the first batch of workers may arrive in December 2021. Discussions are still ongoing among industry players on issues such as the party that will bear the cost of quarantine for the workers.

• Currently, SDP is facing a labour shortage of 19% or 6,000 workers. Annually, about 8,000 of SDP’s workers return home. SDP is recruiting local workers to help mitigate the shortfall in labour.

• As for SDP’s RSPO audit, we gather that the audit process is ongoing. Previously under MCO 3.0, RSPO carried out remote audits using local auditors in the area. However as travel restrictions have eased, physical audits have recommenced.

Source: AmInvest Research - 25 Oct 2021