Low earnings impact on SDP from Kigip

Project part of company’s renewable energy initiative

Sime Darby Plantation Bhd (SDP) is expected to see minimal impact to earnings in the next 12 to 24 months from its plan to develop Tali Ayer estate in Perak into a green industrial park.

SDP said it plans to collaborate with its largest shareholder, Permodalan Nasional Bhd (PNB), to develop the 405ha industrial park which includes a 660-acre solar farm to draw green electrical and electronic (E&E) investments.

Kenanga Research said the details of the project are still in the early stages.

Nevertheless, the research house projects that based on the current land rental of RM5,000 to RM7,000 per acre for solar installation, a 660-acre site could earn Rm3mil to Rm5mil a year, which is negligible to the group.

“However, SDP and/or PNB may develop the estimated – depending on terrain and infrastructure allowances – 200MW to 300MW solar farm to sell electricity for better contribution instead. Development earnings can also be expected but not likely over the next 12 to 24 months,” the research firm said in a report yesterday.

Kenanga Research said renewable energy or RE is not new to SDP as the group already operates 16 biogas plants across Malaysia, Indonesia and Papua New Guinea to date.

Moreover, the group also owns a 15MW solar installation at Bukit Selarong estate in Kedah, not to mention numerous rooftop solar installations within the group operations.

“SDP is also a landlord to 16 solar operators, five of which operate solar farms under the country’s large-scale solar or LSS4 scheme. Thus far, most of the land SDP has employed to generate solar-related returns are in areas either not suitable for oil palm and/or on old rubber estates,” the research house said.

First mooted in Budget 2024, the aim of the Kerian Integrated Green Industrial Park (Kigip) is to draw green E&E investments and ease current and prospective labour, land and even water limitations in the state of Penang.

“Although Deputy Investment, Trade and Industry Minister Liew Chin Tong alluded to possible acquisition of the land from SDP during a March 2024 Parliament question time, SDP and PNB appear to be spearheading the development now but details are not available at this juncture,” Kenanga Research said.

The research house maintained a “market perform” call on SDP with a target price of RM4.

Meanwhile, Maybank Investment Bank (Maybank IB) said for LSS4, about 40% of the quota for solar farms awarded was on SDP’S land. Under the Corporate Green Power Programme, 38% of the quota was produced on the group’s land, some for its own use.

“We believe SDP is primed to further benefit from the recently announced LSS5 (2,000MW capacity). SDP is also said to be exploring opportunities with partners to develop data centres, which typically consume large amounts of energy. We have identified two possible sites, that is Kulai (Johor) and Kulim (Kedah),” the research house said.

Maybank IB said SDP’S participation in the proposed Kigip project is part of its RE initiative that has been identified as a key strategic pillar, and a sizeable revenue source to the group within the next five years.

Maybank IB raised SDP to a “buy” from a “hold” with a target price of RM4.96.

“We believe SDP is primed to further benefit from the recently announced LSS5 (2,000MW capacity).”

Maybank Investment Bank