THE current restriction stemming from the Withhold Release Order (WRO) issued against Sime Darby Plantation Bhd by the US Customs and Border Protection (CBP) only applies to palm oil produced by the former in Malaysia, hence is not expected to have broad commercial implication on products originated from its overseas plantation.
Moreover, only a few customers have dropped the plantation giant from their supplier list due to strict internal company policy, according to UOB Kay Hian Research.
“Most multinationals customers are still sourcing from Sime Plantation and are actively engaging with the company to get the latest updates and progress on this matter,” revealed analysts Leow Huey Chuen and Jacquelyn Yow Hui Li in a company update.
The update follows a virtual briefing session hosted by Sime Plantation to address the WRO issue against the company.
To re-cap, the CBP issued a WRO against Sime Plantation’s palm oil which effectively barred the product from entering the US market on Dec 30 last year based on “information that reasonably indicates the presence of all 11 of the ILO’s (International Labour Organisation) forced labour indicators in Sime Plantation’s production process”.
Towards this end, Sime Plantation has appointed Impactt Ltd, an ethical trade consultancy, as a third party assessor to its newly established Expert Stakeholder Human Rights Assessment Commission.
Impactt has begun conducting a comprehensive evaluation on the planter’s labour practices across its Malaysia operations (four out of six regions have been completed). The evaluation is expected to be completed by end-April.
Once Impactt completes the evaluation and assessment, a draft report will be sent to the human rights commission for an independent review. The official report which is due by June will then be submitted to the US CBP.
A summary from the assessment report will then be made available to the public as well.
“Although Sime Plantation will incur additional costs during this assessment, the cost is not material to the company’s earnings,” UOB Kay Hian Research pointed out.
All-in, the research house maintained its “hold” rating on Sime Plantation with a target price of RM4.90 pegged to 24 times FY2021F PE (price-to-earnings ratio) or the plantation sector’s five-year mean.
Depending on the findings and remediation measures, Maybank IB Research expects that it may take “at least another three months” before the WRO could be lifted.
“In the meantime, the WRO will remain an overcast on Sime Plantation’s share price performance,” opined the research house.
It, too, retained a “hold” stance on Sime Plantation but lowered its target price on the planter to RM4.86 (from RM5.35 previously).
At 3.45pm, Sime Plantation was down 8 sen or 1.77% to RM4.43 with 1.71 million shares traded, thus valuing the company at RM30.5 bil. – April 21, 2021
