PETALING JAYA: The lifting of the export ban of palm products to the United States for Sime Darby Plantation Bhd (SDP) is a positive development even though financially the impact is negligible for now.
It had been more than two years since the United States Customs and Border Protection raised the issue of “forced labour” against SDP and issued a Withhold Release Order to detain raw palm oil and processed products containing palm oil produced by the company at all US ports, essentially preventing such products from entering the United States.
Kenanga Research is keeping SDP’s financial year 2022 (FY22) and FY23 crude palm oil (CPO) price at RM4,000 per tonne and RM3,800 per tonne, respectively.
It said profit after tax and minority interest and core earnings per share were also maintained pending fourth quarter FY22 results expected next week.
It maintained its “underperform” call on the stock with a target price of RM3.65 a share as easier CPO prices amid cost inflation are capping prospects of margin expansion moving ahead.
It cited risks to its call being weather impact on edible oil supply, favourable commodity price fluctuations, and easing of cost inflation.
It said the company offered defensive land-rich net tangible assets, improving gearing from pending divestment of 949 acres for RM618mil to Sime Darby Property Bhd and decent margins as CPO prices should continue to stay firm.
However, reputational risk is the main concern as SDP prides itself as the largest producer of certified palm oil in the world and such an allegation can potentially dent or even nullify such a claim.
The group’s status as a government-linked corporation may not help as criticism against the group may have indirect bearing on the government as well.
A satisfactory closure is thus welcome news for the company, the research house added.
Commercially, the United States is a small market not only for SDP but for palm oil as a whole even though the country is a big edible oil market of 25 million tonnes a year.
However, the country uses only one to two million tonne of palm oil each year, out of which only 0.6 million tonnes come from Malaysia.
As such, Malaysia’s palm oil deliveries to the United States often comprise just 3% of the country’s total palm oil exports.