BUSINESS

SIME DARBY PLANTATION TO RIDE ON HIGHER Y-O-Y CPO PRICE

07/04/2020 11:30 AM

KUALA LUMPUR, April 7  -- Sime Darby Plantation Bhd is in a good position to ride on higher year-on-year (y-o-y) crude palm oil (CPO) prices as it has relinquished its position in its Liberia assets, said Alliance DBS Research.

Additionally, there has also been some slight improvements in the plantation company’s operations in Papua New Guinea and Solomon Island, the research house said.

The company’s high upstream exposure means that its profit is expected to do a lot better than last year due to higher CPO prices y-o-y, hence Alliance DBS has upgraded its call on the stock to a "buy” from “hold”, with a target price of RM5.45.

Sime Darby Plantation’s downstream division is also expected to fare better due to the uptick in demand from packaged foods as a result of movement restrictions implemented by most nations.

Palm oil is also an essential ingredient for hand sanitisers; one of the most sought-after products due to the COVID-19 pandemic, the research house said.

“We believe that any weaknesses in CPO prices would only be temporary as palm oil is seen as an essential good and we believe that there is more upside to CPO prices when the virus outbreak dissipates.

“Furthermore, lower economic activity due to movement restrictions could potentially lead to the owners of small estates further postponing their fertiliser application, potentially leading to even lower production yields in the future,” Alliance DBS said.

The research house said widening palm oil-gas oil spreads has made palm oil usage for biodiesel unfeasible, but it believed that this would be mitigated by higher demand for non-perishable food products.

The end of COVID-19 outbreak would boost CPO exports, it said.

At 10.37am, shares of Sime Darby Plantation fell two sen to RM4.63 with 1.1 million shares transacted.

-- BERNAMA

 

 


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