PETALING JAYA: Sime Darby Plantation Bhd (SDP) is confident of achieving its business and long-term sustainability goals and targets in spite of the global economic challenges ahead.
With a history that stretches back two centuries, chairman Tan Sri Megat Najmuddin Megat Khas said SDP has faced many crises and challenges.
“Looking ahead, we expect the global supply of edible oils to be impacted by several factors from adverse weather to the Russian-Ukraine conflict, which has led to supply disruptions.
“Against this backdrop I am confident that SDP, with our solid track record established over 200 years, is well positioned to achieve our business and long-term sustainability goals and targets,” he said in the company’s 2021 annual report, which was released recently.
Higher crude palm oil (CPO) and palm kernel (PK) prices had helped lift SDP’s net profit in the first quarter ended March 31, 2022 to RM718mil – a 27.76% increase over RM562mil in the previous corresponding period.
In a note on its first quarter results, the plantations group said revenue rose 19% year-on-year to RM4.38bil as the higher prices offset the negative impact resulting from a prolonged labour shortage in the Malaysian palm oil industry and normalisation in Indonesian fresh fruit bunch (FFB) production.
For the quarter, the group reported that average realised CPO and PK prices were up 40% and 84% year-on-year respectively in the first quarter of 2022 to RM4,465 and RM4,105 per tonne.
Meanwhile, the group’s downstream business, Sime Darby Oils, recorded a 23% increase in profit before interest and tax of RM132mil during the quarter under review compared with the previous corresponding period, on the back of higher margins in its Asia-Pacific bulk operations.
Hong Leong Investment Bank (HLIB) Research, in a recent report, said it is raising its 2022 to 2024 core net profit forecasts for SDP by 24%, 26.5% and 20.2% respectively.
According to the research house, the higher forecasts are underpinned by higher CPO price assumptions, higher CPO production cost assumptions at the upstream segment and lower FFB output assumption in 2022.
“Post upward revision in our earnings forecasts and recalibration of our earnings model, we maintain our ‘buy’ rating on SDP with a higher target price of RM6.06 (from RM5.95 earlier).
“SDP remains one of our top picks for the sector, due to its high operating leverage to CPO price. Besides, its proactive measures to tackle the US Customs and Border Protection’s (CBP) ban issues will likely pave the way to alleviate environmental and social governance concerns.”
On Dec 30, 2020, the CBP issued a withhold release order or import ban against palm oil produced by SDP in its Malaysian operations, due to allegations of forced labour.
On Jan 28, the CBP issued a notice of finding that certain SDP palm oil products were produced using convict, forced or indentured labour.
To address the situation, Megat Najmuddin said SDP had appointed consultants to undertake independent, full-scale reviews of labour practices across its Malaysian operations.
“I am confident that SDP will emerge from this episode stronger. We have a long history of doing things the right way and we will continue to strive to do so.
“In our efforts to lead the way, we have embarked on continuous improvements to ensure that we have internal controls and systems in place to support our workers and ensure their well-being,” he added.