PublicInvest Research starts coverage of Sime Plantation with Neutral call

Malaysia's Sime Darby Plantation, the world's largest oil palm planter by land holdings, has also expressed interest in Ruchi Soya.

KUALA LUMPUR: PublicInvest Research has initiated coverage of Sime Darby Plantation with a Neutral call and a target price of RM5.68. 

It said on Thursday the current share has fully reflected the muted crude palm oil (CPO) price performance. 

The research house said the target price was based on forward price-to-earnings ratio (PER) of 29 times (15% premium to the industry average of 25 times), which is justifiable.

The factors are the i) sizeable plantation landbank, ii) strong market share in the global palm oil production and iii) decent average age profile of 12.9 years old. 

“We forecast a FY18-FY20 EPS compounded annual growth rate (CAGR) of 4%, taking into account an average CPO price of RM2,500 to 2,550 a tonne. 

“The assumption is in line with our neutral stance on the plantation sector and current CPO price performance. Based on our sensitivity analysis, every RM100 a tonne variance in CPO prices, Sime Darby Plantation’s bottomline would vary by 10%-12%,” it said.

Nevertheless, the research house expects a muted CPO price performance this year, which is not likely to bring much cheer to its plantation earnings.  

To recap, PublicInvest Research said Sime Darby Plantation, which is formerly part of Sime Darby Berhad, has become a pure play plantation company following the completion of the demerger exercise.
 
On Nov 30, 2017 Sime Darby Plantation and Sime Darby Property were demerged from Sime Darby Bhd through a share split exercise, where the shareholding remains the same for all the three entities during post-demerger. 

“Indeed, the demerger exercise helps lift the plantation valuation from the previous range of 18 times to 20 times to the current level of 28-30 times, which is more reflective of  its substantial market share in the palm oil industry. In addition, a purer play plantation stock fetches higher valuation,” it said.  

PublicInvest Research pointed out Sime Darby Plantations is the world’s largest oil palm plantation company with a total planted area of 602,454ha, spanning across Malaysia, Indonesia, PNG & Solomon Islands and Liberia. 

It produces 2.48 million tonnes of CPO annually or about 4% of total global CPO production.

It is a globally integrated plantation company, involving the entire span of the palm oil value chain, from upstream to downstream activities, R&D, renewables and agribusiness. 

It is also involved in rubber and sugarcane plantations as well as cattle rearing. Upstream segment is the biggest earnings contributor to the group, making up more than 96% of the group’s earnings. Downstream segment accounted for the balance.