PETALING JAYA: The moves by US food group Cargill Inc and Italian confectionary giant Ferrero to stop sourcing palm oil products from Sime Darby Plantation Bhd (SDP) are expected to have minimal financial impact on the plantation group.

       Despite a potential knee-jerk reaction on the share price of SDP, Hong Leong Investment Bank (HLIB) Research believed that the group would be able to divert its products elsewhere, given the current tight supply of vegetable oils globally.

       Furthermore, SDP has already taken necessary steps to address the environmental, social and governance concerns as evident by its recent implementation of continuous improvement plan to address the 11 International Labour Organisation indicators of forced labour.

       “Besides, we understand that the independent assessment report by ethical trade consultancy Impactt Ltd is due to be released soon.

       “SDP is currently going through its internal process of approval of such report,” HLIB Research said in its report.

       The research house maintained its earnings forecast on the group, pending the release of its first quarter of financial year 2022 (1Q22) results in May.

       “Our forecasts are based on crude palm oil assumptions of RM4,300 per tonne for FY22 as well as RM3,300 per tonne for FY23 and FY24 respectively,” said HLIB Research.

       The research house also maintained a “buy” call on the stock with an unchanged target price of RM5.95.

       SDP has, last month, said it would be implementing a RM1,500 monthly minimum wage for all workers across its Malaysian operations with effect from May 1.

       In addition, the plantation group said it would implement additional incentive programmes to encourage productivity among its workforce and attract more locals to join the industry.

       “SDP currently has more than 24,000 plantation workers in Malaysia.

       The rollout of the new minimum wage will require the recalibration of hourly and daily rates and revision of previous benchmarks for wage calculations across the board.

       “This will benefit all workers and employees across the board,” the reseach house pointed out.