KUALA LUMPUR (Jan 19): AmInvestment Bank Research (AmResearch) has maintained its “hold” rating of Sime Darby Plantation Bhd, with an unchanged fair value (FV) of RM5.55, as it expects the company to see minimal impact from the floods in Malaysia.

“We understand that the wet weather has only affected Sime Darby Plantation’s operations in Malaysia so far. Less than 10,000ha of Sime Darby Plantation’s oil palm estates in Malaysia were hit by the floods. These comprise only 3.3% of Sime Darby Plantation’s planted areas of 300,000ha in Malaysia,” said AmResearch in a note today.

Meanwhile, it added that the company’s oil palm estates in Kalimantan were not affected as they already experienced heavy rains in the third quarter ended Sept 30, 2020 (3QFY20).

It also said the impact on PNG (Papua New Guinea) was not known yet as the wet season usually takes place only from February onwards.

About 51.3% of Sime Darby Plantation’s planted areas of oil palms were located in Malaysia as of the end of FY19, while another 33.2% were in Indonesia. The balance 15.5% of the company’s planted areas were in PNG/Solomon Islands.

Operationally, the research house now assumes the company’s fresh fruits bunch (FFB) production to grow 4% in FY21, underpinned by its Indonesian division. It anticipates the Indonesian unit to record an FFB output growth of 5% in FY21 after registering a 10% fall in FY20.

“On a group level, we believe that Sime Darby Plantation will achieve an average FFB yield of 20 tonnes/ha in FY21 versus 19.5 tonnes/ha in FY20,” said the research house.

The research house kept its earnings forecast for FY21 unchanged at RM955.8 million for Sime Darby Plantation.

However, it raised its FY20 net profit forecast by 5.9% to RM789.3 million, accounting for a higher plantation earnings before interest and tax (EBIT) margin and downstream earnings.

In line with the higher net profit, the research house forecast the company’s dividend per share (DPS) to increase to eight sen for FY20 and further grow to 8.5 sen for FY21, compared with one sen for FY19.

Meanwhile, it forecast the company’s net gearing (including RM2.2 billion perpetual sukuk) to decline to 67.2% as at end-FY20, from 72% as at end-FY19, due to higher cash flows from improved crude palm oil (CPO) prices.

Going forward, the research house believes that the company’s de-gearing exercise will take a breather in FY21.

“Due to the Covid-19 pandemic, we reckon that there is little appetite for land bank acquisition currently. Also, approvals of government agencies for any potential sale of land bank may take some time,” it pointed out.

“As at end-June 2020, Sime Darby Plantation had sold about 58.1% or 1,350 acres out of the 2,324 acres of land bank targeted for disposal. We think that Sime Darby Plantation recognised gains of RM450 million from the disposal of land bank and non-performing assets in 9MFY20 (the cumulative first nine months ended Sept 30, 2020),” it added.

It noted that Sime Darby Plantation’s asset disposal programme involves selling 2,324 acres of land bank and its 50% stake in Emery Oleochemicals for a rough sum of more than RM1.5 billion in total.

At noon, the stock was traded 12 sen or 2.41% higher at RM5.10, bringing it a market value of RM35.1 billion. The stock had rebounded 27% from its March’s low of RM4.01.