Sime Darby Plantation announced that the United States Customs and Border Protection (USCBP) has modified its forced labour finding against the Group, effectively, allowing the export of palm oil to the US. It is also seen as a recognition of the Group’s 2-year efforts to review, revise and upgrade its protocols for recruiting, managing and working with its workers. Although this has limited impact on its bottomline, the modification by the USCBP should help improve its creditability in view of the heightening concerns over the corporate ESG rating. Maintain Neutral with an unchanged TP of RM4.60 based on 18x FY23 EPS.

• A number of key measures were introduced. Firstly, the reimbursement of recruitment fees that have been paid by current and eligible former workers to secure employment with the Group. PricewaterhouseCoopers was also appointed to independently validate each remediation payment.
  Secondly, the introduction of stricter expectations within the Group’s enhanced Migrant Worker Responsible Recruitment Procedure, which ensures the appointed recruitment agents are contractually accountable for compliance to ethical and transparent recruitment standards as well as its own policies and standards.
  Thirdly, a commitment to conduct regular due diligence on contractors to ensure they strictly adhere to Sime Darby Plantation’s Contractor Vendor Management policies and guidelines. In addition, a creation of social dialogue platforms where workers elect representatives from every nationality to meet with estate management fortnightly. The setting up of three dedicated helplines, two of which are independently administered, for workers and contractors to raise grievances.
  The introduction of controls for monitoring working hours through a process automation system to track the clock-in and clock-out time of workers to ensure maximum working hours are not breached.
  The development of a dedicated mobile application for workers to request repairs to their on-site accommodation.
  Finally, the implementation of an ESG (environmental, social and governance) scorecard in each operating unit, which carries as much weight as the operational scorecard.

• Palm oil exports resume. It is worth noting that the US market accounted for less than 5% of Sime Darby Plantation’s group revenue in FY21. Despite not being a major export market, the ban has triggered concerns over its ESG image in view of the heightening attention over the ESG rating. When the ban is lifted by the USCBP, we believe that Cargill would resume buying from the Malaysian unit. To recap, Cargill withdrew Sime Darby Plantation’s Malaysian unit as a supplier in Feb 2022 following the ban.

Source: PublicInvest Research - 7 Feb 2023