SD Plantation shares to still thrive despite Ferrero, Cargill setbacks?
20/04/2022 (New Straits Times), Kuala Lumpur - The impact on Sime Darby Plantation Bhd's share price from Italian confectionary giant Ferrero and Cargill Inc bans of the former's palm oil is just a knee-jerk reaction, analysts said.
The bans were also not expected to significantly affect SD Plantation's financial performance, they said.
SD Plantation shares dropped by as much as 5.47 per cent on Friday, before settling 4.3 per cent lower.
But the counter gained some ground on Monday, to close eight sen higher or 1.58 per cent at RM5.15.
Year-to-date, SD Plantation has outperformed Bursa Malaysia's benchmark FBM KLCI, thanks to escalating crude palm oil (CPO) price.
The counter has gained 34.1 per cent so far this year, versus the benchmark index's 2.1 per cent rise.
As of April 15, CPO price stood at RM6,642.50 per tonne. This was significantly higher than SD Plantation's realised CPO price of an average of RM2,664 to RM4,179 per tonne during the financial year ended December 31, 2021.
CPO price hit a record high on March 2 at RM8,076.50 per tonne.
Hong Leong Investment Bank Bhd analyst Chye Wen Fei said while the latest decisions by Ferrero and Cargill had reignited investors' environmental, social and governance (ESG) concerns over SD Plantation, the impact on its share price was likely a knee-jerk reaction.
Chye said the financial impact on SD Plantation should be minimal as it would be able to divert its products elsewhere.
This is given the tight supply of vegetable oils, she said, adding that the company had already taken the necessary steps to address these ESG concerns as evident by its recent implementation of a continuous improvement plan to address the 11 International Labour Organisation indicators of forced labour.
"Besides, we understand that the independent assessment report by Impactt is due to be released soon as SD Plantation is currently going through its internal process of approval for such a report," she said in a report.
Chye maintained her SD Plantation earnings forecasts for the financial year ending Dec 31, 2022 (FY22) and FY23 at RM2.3 billion and RM1.66 billion, pending the release of its results for the first quarter ended March 30, 2022 by May.
It was reported that the Ferrero ban particularly had begun April 6 across its supply chain globally. This was made following a forced labour allegation raised by the United States Customs and Border Protection (CBP).
According to Reuters, the confectionery group only ordered a relatively small amount of palm oil from SD Plantation and it was not a direct purchase.
It also quoted the plantation company as saying that it had taken steps with regard to human rights issues.
In January, the CBP said it had evidence that SD Plantation was using forced labour and this was followed with a seizure of its goods a few months later.
Reuters reported that Malaysia's labour practices had come under scrutiny in the past two years, with six companies including SD Plantation banned by the US customs over forced labour allegations.