• Still NEUTRAL, higher MYR4.80 TP from MYR4.60, 8% upside. The US Customs & Border Protection (CBP) ban on Sime Darby Plantation’s Malaysian products should be lifted soon, as it has been established that it no longer uses forced labour. While this is positive, we believe the share price has already reflected this – to a certain extent – given the recovery seen over the last few months. We raise our ESG rating to 2.8 from 2.6.

• SDPL’s products are no longer produced with forced labour. The CBP has determined that palm oil and derivative products made wholly or in part with palm oil produced by SDPL are no longer being produced via the use of forced labour. The US federal agency has established that it has satisfactory evidence that the company no longer uses such labour to produce its palm oil products.

• Positive on the news, Withhold Release Order (WRO) to be lifted soon. Based on this determination, we are positive on this news, as this could mean that the finding issued by the CBP in Jan 2022 on SDPL could be lifted. We understand the modification is scheduled to be published on 3 Feb (Washington DC time).

• SDPL has made the necessary changes to its operations. We believe the company has put in the work to bring its labour standards up to scratch in accordance with global labour guidelines. Changes include: i) Installing passport lockers within each worker’s bedroom, ii) putting in place grievance channels in the many different languages of its foreign workforce, and iii) ensuring regular communication with foreign workers’ representatives via meetings amongst other measures. Note: We have yet to see the document published by independent consultant Impactt to see the full range of issues that caused the initial International Labour Organisation or ILO breach.

• The share price has reflected the lifting of the WRO – to a certain extent. We believe SDPL’s share price has, to a certain extent, already reflected this soon-to-be lifting of the WRO, given that the share price has moved up by16% to current levels from its lows in Oct 2022.

• We make no changes to our earnings forecasts, as we believe the WRO’s impact on SDPL’s earnings have been relatively immaterial. We understand that it had previously channelled some of its sales to the US from its Papua New Guinea and Indonesian operations instead of from Malaysia – to ensure that revenue was not materially affected. Additionally, we understand that US customers did not break off relationships with SDPL, choosing instead gave it time to resolve its labour issues. Note: The WRO was only in regards to its local operations.

• Maintain NEUTRAL with higher TP of MYR4.80. We lift our ESG score to 2.8 from 2.6 after lifting our score on the “Social” pillar to 2.3 from 1.7. With this, our TP is lifted to a higher mark.

Source: RHB Research - 3 Feb 2023