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Kenanga adjusts Sime Darby Plantation 2022-23 eps, price to stay firm

23/05/2022 01:07 PM

KUALA LUMPUR, May 23 (Bernama) -- Kenanga Research adjusted its financial year 2022-23 core earnings per share on Sime Darby Plantation Bhd by one per cent and five per cent, respectively, on firm palm oil prices staying longer, but maintained a market perform on the plantation stock with target price of RM5.25.

The world's supply of leading vegetable oils, palm and soybean is expected to pick up seasonally in the second half of calendar year 2022, which in turn should exert some downward pressures on prices.

“However, palm oil prices are likely to stay relatively firm on the back of several supportive factors, namely the tight worldwide edible oils and fat market, low palm oil inventories in China, India and Pakistan and the current high oil and gas prices,” it said in a note.

The research house maintained Sime Darby Plantation’s average crude palm oil price at RM4,000 per tonne for financial year 2022 (FY22) and RM3,500 for FY23, but is nudging up palm kernel prices by 18 per cent and eight per cent, respectively.

“However, we are increasingly doubtful that the arrival of new guest workers can adequately meet 2H CY22 peak harvesting needs.

“As such, we are toning down fresh fruit bunches output by approximately five per cent, partly to reflect lower Malaysia production and also the poorer Indonesian harvest in 1QCY22,” it said.

It said all in all, the group has some defensive qualities, such as a land-rich balance sheet, decent gearing, and is a beneficiary of food inflation as edible oils and fats prices have risen substantially compared to a year ago.

 A larger-than-expected dividend payout cannot be ruled out either for FY22, Kenanga Research said.

It added that the forced labour issue raised by the US Customs and Border Protection agency is among some of the concerns preventing a stronger recommendation and higher target price for a group so prominent in the plantation sector.

MIDF Research, which has a “Buy” call on the company with a target price of RM5.50, believes palm oil demand to remain favourable due to uncertainties over Russia-Ukraine prolonged war and subdued production outlook for soybean (2022 estimate: 350.7 million tonnes vs 2021: 367.8 million) .

Maybank Investment Bank said the recent minimum wage hike in Malaysia is expected to increase Sime Darby Plantation’s yearly cost by up to RM90 million per annum.

Coupled with higher fertiliser cost locked in recently, the company expects its FY22E cost to customer (per tonne) to be lower than its first quarter 2022’s group blended cost achieved at RM2,300 per tonne (FY21: RM1,860 per tonne).

Maybank IB has a “Hold” call on the stock with a target price of RM4.997.

Echoing Maybank IB, Public Investment Bank (PIVB) said the wage hike will result in a wage cost of  between RM80 million and RM90 million based on 24,000 workers in Malaysia.

PIVB is neutral on the stock with a target price of RM4.60.

At 11 am, the counter fell 2.70 per cent to RM5.04 with 1.46 million shares transacted.


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