Sime Plantation’s labour woes easing
Sime Darby Plantation Bhd’s (Sime Plantaion) labour woes are easing and so far, the company faces no major issues with the weather, analysts observed.
In a report, the research team at AmInvestment Bank Bhd (AmInvestment) said Sime Plantation’s labour woes have eased.
“The group has enough workers in Malaysia and most of them have completed their training. Currently, Sime Plantation has an estate workforce of 27,000 in Malaysia, 31,000 in Indonesia and 10,000 in Papua New Guinea (PNG).
“As such, we think that Sime Plantation’s FFB production would improve by a stronger six per cent in FY24F compared with 3.5 per cent in FY23E.
“We understand that there are no major issues with the weather so far,” it said.
Aside from that, it noted that on the back of a higher volume of CPO production and lower fertiliser costs, it estimated Sime Plantation’s cost of production (cost to customers) at RM2,300 per tonne in FY24F compared with RM2,500 per tonne in FY23E.
“We think that fertiliser costs would decline by 10 to 20 per cent in FY24F in line with global trends,” it said.
It forecast downstream EBIT (trading, bulk and differentiated products) to rise by 25 per cent to RM491 million in FY24F driven by positive demand and selling prices in Europe.
“We have assumed an EBIT margin of 2.5 per cent in FY24F compared with two per cent in FY23E,” it said.
It also noted that Sime Plantation is not expected to be significantly affected by EU’s deforestation regulation (EUDR), which will be implemented at the end of the year.
“Sime Plantation’s palm products, which are sold to the EU come mainly from PNG (Papua New Guinea).
“In PNG, Sime Plantation’s palm products are segregated balance RSPO-certified oil. This means that although the CPO are RSPO-certified, they come from different sources. Europe accounted for 21.3 per cent of Sime Plantation’s revenue in FY22,” it added.
It also forecast Sime Plantation’s capex at RM2.5 billion in FY24F compared with RM2 billion in FY23E.
“The bulk of capex is expected to be for the replanting of ageing oil palm trees and a new palm refinery in Indonesia.
“Sime Plantation would be completing the construction of its palm refinery in North Sumatra at the end of FY24F.
“The refinery’s capacity is expected to be more than 450,000 tonnes per year,” it said.
All in, AmInvestment maintained its ‘hold’ call on the stock.