Investment Highlights

• We maintain HOLD on Sime Darby Plantation (SDP) with an unchanged fair value of RM4.40/share. Our fair value for SDP is based on a FY23F PE of 18x, which is the 5-year mean for plantation companies. We ascribe a 3-star ESG rating to SDP.

• SDP held an analyst briefing yesterday in respect of the lifting of its ban in the US by the US CBP. Here are the key takeaways:-

• Going forward, SDP will continue carrying out external surveys to get feedback from workers. Independent third parties will also be carrying out reviews on key labour indicators. Also, there is a zero-tolerance approach on labour abuses. SDP will take stern and swift action on those breaking the rules.

• SDP will be rolling out labour initiatives implemented in Malaysia to its operating units in Indonesia and Papua New Guinea. Some of the initiatives will be customised to the working culture and operating conditions in the respective countries. At the end of 2021, SDP appointed a third party to audit its labour processes in Indonesia. The audit is at an advanced stage of completion.

• Some of the initiatives implemented in Malaysia included a Social Dialogue Forum and a new grievance channel. The Social Dialogue Forum is the first formalised platform in Malaysia between workers and management. So far, estate workers have raised 14,000 issues and out of these, 97% have been cleared.

• The new grievance channel, managed by a third party, is an addition to the existing 2 channels. Workers, who do not want to use the existing channels can voice their concerns on the new grievance channel.

• Since the lifting of the ban in US, SDP’s Malaysian operations have received enquiries from American customers. We understand that SDP will benefit from the premium for the sale of RSPO-certified products to US. Currently, the RSPO premium is about US$20/tonne.

• SDP is currently trading at a fair FY23F PE of 18x vs. its 2- year average of 16x.

Source: AmInvest Research - 10 Feb 2023