SIMEPLT and its principal shareholder, Permodalan Nasional Bhd (PNB), are aiming to develop Tali Ayer estate in Perak into a green industrial park. The 1,000-acre (405-Ha) industrial park will include a 660-acre solar farm to draw green electrical and electronic (E&E) investments. The impact on SIMEPLT is expected to be minimal for the next 12-24 months; hence, FY24-25F CEPS, TP of RM4.00 and MARKET PERFORM are maintained.

Kerian Integrated Green Industrial Park (KIGIP). Details of the project are still scant. Located in north Perak and yet just 40-minute drive from Batu Kawan Industrial Park (BKIP) and 60-minute from Bayan Lepas Industrial Park, KIGIP was first mooted in the 2024 Budget. The aim is to draw green E&E investments and ease current and prospective labour, land and even water limitations in the state of Penang. Although Deputy Investment, Trade and Industry Minister (YB Tuan Liew Chin Tong) alluded to possible acquisition of the land from SIMEPLT during a March 2024 Parliament question time, SIMEPLT and PNB appear to be spearheading the development now but details are not available at this juncture.

SIMEPLT is not new to renewable energy. To date the group already operates 16 biogas plants across Malaysia, Indonesia and Papua New Guinea. SIMEPLT also owns a 15MW solar installation at Bukit Selarong estate in Kedah not to mention numerous rooftop solar installations within the group operations. SIMEPLT is also a landlord to 16 solar operators, 5 of which operate solar farms under the country’s Large Scale Solar or LSS4 scheme. Thus far, most of the land SIMEPLT has employed to generate solar-related returns are in areas either not suitable for oil palm and/or on old rubber estates.

Impact on FY24-25F earnings is minimal as KIGIP is still in early stages of planning. Based on current land rental of RM5k-7k per acre for solar installation, a 660-acre site could earn RM3m-RM5m a year which is negligible to the group. However, SIMEPLT and/or PNB may develop the estimated - depending on terrain and infrastructure allowances - 200-300MW solar farm to sell electricity for better contribution instead. Development earnings can also be expected but not likely over the next 12-24 months.

Towards 2050 Net Zero Commitment. Aside from prospective solar and land development profit, the solar farm is also expected to help SIMEPLT achieve its net zero goal by 2050.

Forecasts. Maintained FY24-25F CNP.

Maintain MARKET PERFORM and TP of RM4.00. SIMEPLNT offers defensive land-rich NTA, improving gearing with firm CPO prices. However, SIMEPLT looks expensive for now, trading at 1.8x FY25F Price/NTA with no ESG premium in view of its average 3-star scoring.

Risks to our call include: (i) weather impact on edible oil supply, (ii) favourable commodity prices fluctuations, and (iii) easing of cost inflation.

Source: Kenanga Research - 8 May 2024