Sime Darby Plantation - US agency clears SDP of forced labour charges

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  • Bloomberg reported that US has cleared Sime Darby Plantation (SDP) of forced labour charges.
  • The Department of Homeland Security said that SDP’s palm products “are no longer mined, produced or manufactured in any part with forced labour”.
  • This is positive as it paves the path for the US CBP to lift the ban on SDP’s Malaysian palm products. Recall that the US CBP banned SDP’s Malaysian palm products in December 2020 due to allegations of labour abuse.
  • Although the US is not a major revenue generator for SDP, the ban was a hit to SDP’s credibility and reputation. It also triggered concerns that European customers would follow suit. The US accounted for less than 5% of SDP’s group revenue of RM18.7bil in FY21.
  • When the ban is lifted by the US CBP, we believe that Cargill would resume buying from SDP’s Malaysian unit. To recap, Cargill dropped SDP’s Malaysian unit as a supplier in February 2022 due to the ban by the US CBP.
  • Although the lifting of the ban would not affect SDP’s profitability significantly, we think that it is positive in terms of sentiment.
  • We maintain HOLD on SDP with a fair value of RM4.40/share. SDP is currently trading at a FY23F PE of 18x, which is higher than its 2-year average of 16x.

Source: AmInvest Research - 3 Feb 2023

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