RATING agency Malaysian Rating Corporation Bhd (MARC) has retained Sime Darby Plantation Bhd’s (SDP) corporate credit rating at AAA due to its stable outlook.
MARC attributed the positive rating to the solid state of SDP’s sizeable, geographically-diversified and integrated palm oil generation capabilities.
“The rating also benefits from a one-notch uplift for implicit support from parent Permodalan Nasional Bhd (PNB), a government-linked investment company.
“SDP’s exposure to crude palm oil (CPO) price movement that leads to cash flow volatility remains a moderating factor,” MARC said in a statement.
MARC acknowledged that SDP’s profits were affected due to lower CPO prices.
“Given the group’s commitment to spend an average of RM800 mil on replanting, the decline in cash flow generation from lower CPO price in recent years has weighed on its ability to reduce its debt obligations from internally generated funds,” the rating agency stated.
However, MARC noted that SDP is currently focused on proceeds from land disposals to pare down its borrowings.
Following some delays, land parcel sales totalling RM438 mil were completed in the first half of this year.
Downstream business booming
“SDP’s adjusted borrowings were lower at RM8.7 bil in 1H2020 (1H 2019: RM8.9 bil). On completion of the full disposal of land parcels, with the proceeds utilised to reduce borrowings, the group’s leverage is expected to improve further,” the rating agency said.
MARC also mentioned that SDP’s downstream operations called Sime Darby Oils (SDO) accounted for about 15.5% of its total operating profit of RM727 mil in the first half of this year.
“SDO was created to highlight the group’s focus on specialty products, premium quality oils and other differentiated products which command higher margins and would boost the characteristically thin operating profit margins of its downstream operations of below 3%.
“As a fully certified sustainable palm oil producer, the group is on track to further penetrate the global fast-moving consumer goods industry,” added the rating agency. – Oct 21, 2020
