Tuesday, November 12

Analysts neutral on Sime Plantation’s near-term outlook

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Analysts have maintained their ‘neutral’ view on Sime Plantation’s near-term outlook. — AFP photo

KUCHING: Analysts have maintained their ‘neutral’ view on Sime Darby Plantation Bhd’s (Sime Plantation) near-term outlook.

In a report, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) noted that Sime Plantation’s management has guided for low-to-mid single-digit fresh fruit bunches (FFB) growth outlook across its Malaysia, Indonesia and Papua New Guinea (PNG) and SI segments.

“On the other hand, FFB growth in Liberia is expected to be robust at possibly 50 to 60 per cent given its very young tree age profile (average 5.4 years old), but we note that contribution from the segment is not overly material as its planted oil palm area only constitutes circa two per cent of the group’s total.

“We also understand that overall group’s mature area should remain relatively unchanged from 2018. As such, we estimate FYE12/19 FFB growth at five per cent, in line with the sector’s average,” said the research team.

Aside from that, it highlighted that Sime Plantation’s operational efficiencies are expected to drive cost reduction.

“We expect the group’s ex-mill cost of production to improve to RM1,200 per metric tonne (MT) in FYE12/19 from RM1,260 per MT in FYE6/18,” it said.

It noted that the group aims to achieve cost reduction by optimising fertiliser application (hence lower usage), rationalising head office expenses in PNG and improving labour efficiency.

“Currently, labour efficiency has ample room for improvement – Indonesia with labour:ha ratio at 1:7.5 and PNG at 1:5, compared with the better benchmark of 1:10 in Malaysia,” Kenanga Research added.

Sime Plantation’s downstream segment is also expected to recover as competition eases.

“Recall that Downstream PBIT plummeted 31 per cent in 1QFYE12/18 as PBIT from differentiated products nosedived 81 per cent amid a competitive environment.

“During the period, sales composition of differentiated products fell to 43 per cent compared with 48 per cent in the previous quarter.

“We understand that the stiff competition in the differentiated products segment has eased, and
the sales composition of differentiated products is expected to recover to 50 per cent in FYE12/19.

“Overall, downstream profit margin should improve from the current two to three per cent in FY12/19. Downstream accounted for 19 per cent of the group’s PBIT in 1QFYE12/18,” Kenanga Research explained.