Pandemic Progress Check: Asian Palm Oil
27.10.2020 (www.fitchratings.com) - Crude palm oil (CPO) prices in 2020 are likely to be significantly better than Fitch Ratings’ earlier expectations, due mainly to a slower-than-expected recovery in yields. This should result in higher EBITDA and lower leverage for rated companies. We now assume benchmark CPO prices to average around USD600/tonne(t) in 2020. Sime Darby Plantation Berhad’s EBITDA increased by almost two-fold yoy in 1H20, driven primarily by higher CPO prices. Robust 1H20 EBITDA should lead to FFO net leverage falling to around 3x by end-2020. We maintain our expectations of negative FCF, albeit at a lower level, as we now see the risk of higher dividends. PT Tunas Baru Lampung Tbk reported a 12% increase in 1H20 EBITDA to IDR1.2 trillion, driven by higher CPO and sugar prices. We expect 2H EBITDA to be marginally better than 1H20. We rate PT Ivo Mas Tunggal and PT Sawit Mas Sejahtera based on the consolidated profile of their parent, Golden Agri-Resources Ltd. (GAR). GAR’s 1H20 EBITDA, as per Fitch’s calculations, grew 2% yoy to USD179 million. Leverage should continue to remain high in 2020