WHILE the latest decisions by Ferrero and Cargill reignite investors’ environmental, social and governance (ESG) concerns on Sime Darby Plantation Bhd, Hong Leong Investment Bank (HLIB) Research expects impact on the planter’s share price (which has retraced by -4.3% on Friday) to be a knee jerk affair.
This is given (i) the financial impact on Sime Plantation should be minimal as it is able to divert its products elsewhere given the tight supply of vegetable oils; and (ii) it has already taken necessary steps to address these ESG concerns as evident by its recent implementation of continuous improvement plan to address the 11 International Labour Organisation (ILO) indicators of forced labour.
“Besides, we understand that the independent assessment report by Impactt is due to be released soon as Sime Plantation is currently going through its internal process of approval of such report,” opined analyst Chye Wen Fei in a company update.
“We maintain our ‘buy’ rating on Sime Plantation with an unchanged sum-of-parts target price of RM5.95. Sime Plantation remains one of our top picks for the sector due to its high operating leverage to crude palm oil (CPO) price.”
To re-cap, Italian confectionary giant Ferrero had on April 4 requested all its direct suppliers to stop supplying them with palm oil and palm kernel oil sourced indirectly from Sime Plantation until further notice following the US Customs and Border Protection’s (US CBP) issuance of notice of finding on Jan 28.
The notice has determined that certain Sime Plantation’s palm oil products are produced using convict, forced or indentured labour, and the finding is primarily aimed at the planter’s Malaysian operations.
Meanwhile, US commodities giant Cargill in a move not previously reported said it had in March 2022 suspended purchases from Sime Plantation pending more information of the latter’s measures to address its labour allegations.
In its website, Cargill said Sime Plantation had taken “very constructive and potentially transformative” steps, but it needed more information to determine if Sime Plantation was meeting its sustainability standards. In its FY2020, Europe accounted for 24% of Sime Plantation’s revenue.
At 10.47am, Sime Plantation was up 9 sen or 1.78% to RM5.16 with 2.63 million shares traded, thus valuing the company at RM35.68 bil. – April 18, 2022
