The planter is facing several challenges in addressing ILO standards and compliance with RSPO standards and exercise

by NUR HAZIQAH A MALEK / Pic by AFP

SIME Darby Plantation Bhd (SDP) expects to complete the Withhold Release Order (WRO) issued by the US Customs and Border Protection by early 2022.

Hong Leong Investment Bank Bhd (HLIB) analyst Chye Wen Fei said other key takeaways from a briefing with the planter include the latter facing several challenges in addressing International Labour Organisation (ILO) standards as well as compliance with Roundtable on Sustainable Palm Oil (RSPO) standards and exercise involving cost of RM20-RM25 million arising from the assessment process.

“Management shared that it is trying to expedite the assessment in certain areas particularly, in Sabah and Sarawak, which have already transitioned from Phase 1 of the National Recovery Plan, and is hopeful to complete them by early 2022.

“Upon completion of the assessment report by Impactt Ltd which will consist of findings and recommendations, SDP will then work with Impactt on a corrective action plan,” she stated in her note on SDP.

In addition, SDP’s several challenges to address ILO standards include the remote location of its plantation estates, interpretation of recruitment cost and resetting certain culture standards on a group-wide basis.

Chye said while RSPO’s principles and guidelines overlap with ILO indicators, management shared SDP is still in compliance with RSPO standards, as RSPO carries its own audit on SDP’s practice.

“We understand that SDP has been constantly engaging with its multinational company customers on the progress and updates on this matter, and they are either supportive or neutral on the latest progress.

“Management shared the exercise would involve a cost of RM20-RM25 million arising from the assessment process which includes costs arising from consultation and installation of passport lockers,” she stated.

HLIB has maintained its valuation on SDP pending release of the group’s results for the second quarter on Aug 18, 2021.

“We note that the cost associated with the abovementioned exercise has yet to be reflected in our forecasts, and our core net profit forecasts of RM1.63 billion, RM1.19 billion and RM1.18 billion in financial year 2021 (FY21), FY22 and FY23 is based on crude palm oil price assumptions of RM3,200/MT in FY21 and RM2,800/MT in FY22 to 23,” she said.

The research outfit maintained a ‘Buy’ rating on SDP with an unchanged sum-of-parts target price of RM5.05.

SDP is trading at FY21-22 priceto-earnings of 14.5 times and 19.8 times respectively. The stock closed the trading day up five sen at RM3.48, valuing the planter at RM23.7 billion.