KUALA LUMPUR: Affin Hwang Capital Research maintained its hold call on Sime Darby Plantation
with an unchanged target price of RM5.35 based on an unchanged 25x CY18E core earnings per share following a visit to its estates under PT Aneka Intipersada in Pekanbaru in Indonesia.
The research house said the weighted average age of the palm trees in Indonesia is about 14 years, slightly older than the group average of about 13 years.
The estates have started to replant at a higher rate of 4% to 7% of the total planted area per annum in line with the group's target to reduce its average palm tree age to about 10 years by FY2025.
"For 1HFY18, SD Plantation’s Indonesia FFB yield was flat yoy at 8.91 MT/ha, lower than the 12.8 MT/ha in Malaysia and 9.76 MT/ha in Papua New Guinea (PNG).
"Indonesia’s 1HFY18 FFB production was down by 5% yoy to 1.44m MT, partly attributable to smaller prime matured areas due to the aggressive replanting programme as well as certain estates in
Kalimantan area not having fully recovered from the 2015-16 El Nino phenomenon.
"The selection of high quality planting materials, stringent culling process and adoption of best estate management practices could potentially help improve the Indonesian production going forward," said the research house.
Affin Hwang Research observed that the rising minimum wage in indonesia is a concern and hence, more mechanisation needs to be put in place at the Indonesian operation to prevent a higher cost of production.
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