KUALA LUMPUR, Jan 31 — MIDF Research (MIDF) believes that the outlook for Sime Darby Plantation Bhd (SDP) will remain resilient as the group plans to implement the necessary improvements and specific action plan upon the completion of an assessment report by an independent trade consultancy.

In a note today, MIDF said the acceleration of the report should help the Sime Darby group towards petitioning for revocation of a Withhold Release Order (WRO) by the United States Customs and Border Protection (US CBP).

“We are positive on the appointment of the independent ethical trade consultancy as we believe that their expertise will help to accelerate the auditing process and eventually revoke the WRO by the US CBP.

“We also believe that the group’s outlook will remain resilient as it is planning to implement the necessary improvements and specific action plan upon the completion of the assessment report,” MIDF said.

On January 28, 2022, CBP issued a notice of finding which determined that certain SDP palm oil products were produced using convict, forced or indentured labour.

The notice of finding will see SDP’s palm oil products seized by port directors and forfeiture proceedings commenced against its products.

“We made no adjustments to SDP’s forward earnings and we leave our earnings forecast for the financial year 2022 (FY22) and FY23 at RM1,384.5 million and RM1,182.4 million, respectively, at this juncture.

“We are maintaining our target price (TP) at RM4.42 per unit,” MIDF added.

Meanwhile, Maybank Investment Bank (IB) said SDP needs to be transparent in sharing the findings of the impact assessment report and rectify any shortcomings soonest possible to restore confidence.

“Even as the financial impact to SDP has been muted thus far, RM9.1 billion in market cap has been wiped off since the WRO had been issued.

“While the market appears to have priced in the worst, we do not rule out possible negative knee-jerk reaction following this finding. We maintain a ‘buy’ call and target price (TP) of RM4.47 per unit for SDP,” it said.

Public Investment Bank said despite seeing a muted financial impact given the current strong crude palm oil (CPO) price performance and small exposure to the US market, the bank believes the SDP’s valuation will continue to erode due to environmental, social and governance (ESG) issues.

“This could also affect demand for its products from other buyers, particularly, the Europeans.

“The US ban could eventually trigger contagious effects to other countries given the rising global concerns over ESG,” it said.

The bank noted that SDP’s palm oil buyers could also switch their demand to other palm oil suppliers or the refiners might take advantage by asking for a steep discount due to the poor perception of its CPO products,” it said.

In view of the rising ESG concerns, the bank revises its TP from RM4.57 to RM4.12 per unit. The bank maintains a “neutral” call on the stock. — Bernama