SIME DARBY PLANTATION BHD

By Affin Hwang Capital Research Rating: Hold (maintained) Target price: RM5.35

THE weighted average age of Sime Darby Plantation’s oil palm trees in Indonesia is about 14 years, which is slightly older than the group average of about 13 years.

Due to this, some estates in Indonesia have started their replant- ing programme at a faster rate, noted Affin Hwang Capital Research.

It said this, together with certain areas in Kalimantan having not fully recovered from the El Nino, caused the group’s FFB production in Indonesia for the first half of FY18 to be lower by 5% year on year 1.44mil tonnes.

“The selection of high quality plant- ing materials, stringent culling process and adoption of best estate management practices could potentially help improve the Indonesian production going forward,” the research house said.

Sime Darby Plantation targets to reduce its average oil palm tree age to about 10 years by FY2025.

The research house maintained its “hold” call on Sime Darby Plantation with an unchanged 12-month target price of RM5.35.

For the first half of FY18, the group’s Indonesia operations FFB yield was flat year on year at 8.91 tonnes/ha, which is lower than the 12.8 tonnes/ha in Malaysia and 9.76 tonnes/ha in Papua New Guinea.

While there is no problem sourcing for workers in Indonesia, the research house noted that the rising minimum wage is a concern.

“As such, more mechanisation needs to be put in place at the Indonesian operation.

“Failure to do so could lead to a higher cost of production in Indonesia,” it said.

More mechanisation needs to be put in place at the Indonesian operation.

Affin Hwang Capital Research