USCBP had on 3 Feb 2023 modified its forced labour finding against Sime Darby Plantation (SDPL), following the custom’s statement that SDPL’s palm oil products are no longer produced through forced labour. We are positive on the latest development, as this indicates that the WRO imposed by USCBP (since Jan 2022) will soon be lifted, hence allowing SDPL to resume exports of its palm oil products to US (although impact on SDPL, both in terms of earnings and share price will likely be insignificant). Maintain earnings forecasts, HOLD rating, and TP of RM4.49 based on unchanged 18x FY24 core EPS of 24.9 sen.

NEWSBREAK

SDPL’s products are no longer produced with forced labour. The United States Customs and Border Protection (USCBP) had on 3 Feb 2023 modified its forced labour finding against Sime Darby Plantation (SDPL), following the custom’s statement that SDPL’s palm oil products are no longer produced through forced labour.

Background. To recap, USCBP had on 16 Dec 2020 issued a Withhold Release Order (WRO) on palm oil products produced by SDPL and its subsidiaries, based on information that reasonably indicated the presence of all 11 of the International Labour Organisation’s forced labour indicators in SDPL’s production process. USCBP subsequently issued a notice of finding on 28 Jan 2022, in which it had determined that certain SDPL’s palm oil products are produced using convict, forced or indentured labour, and the finding is primarily aimed at SDPL’s Malaysian operations. In response, SDPL introduced several strategies as part of its renewed commitments to safeguard the welfare of its employees. These include, amongst others, reimbursement of recruitment fees that may have been paid by current and eligible former workers to secure employment with SDPL, introduction of stricter expectations within its enhance Migrant Worker Responsible Recruitment Procedure, conducting regular due diligence on contractors to ensure that they strictly adhere to SDPL’s contractor vendor management policies and guidelines (when managing workers), and creation of social dialogue platforms.

HLIB’s VIEW

A positive development. We are positive on the latest development, as this indicates that the WRO imposed by USCBP (since Jan 2022) will soon be lifted, hence allowing SDPL to resume exports of its palm oil products to US.

Forecast. Maintained, as we believe the WRO’s impact on SDPL’s earnings had been minimal in the past 2 years.

Maintain HOLD, with unchanged TP of RM4.49. We maintain our HOLD rating on SDPL with an unchanged TP of RM4.49 based on unchanged 18x FY24 core EPS of 24.9 sen. While the latest development is a positive one, we reckon that impact on SDPL (both in terms of earnings and share price) will likely be minimal, as (i) WRO had insignificant impact on SDPL’s earnings earlier, and (ii) share price has run up by >15% since Oct 2022.

Source: Hong Leong Investment Bank Research - 7 Feb 2023