Sime Darby Plantation ‘market perform’: Kenanga

PETALING JAYA: Kenanga Research has initiated coverage on Sime Darby Plantation Bhd with a “market perform” recommendation at a target price of RM5.50, on the account of the plantation giant’s market leadership position, emphasis on sustainable palm oil production, fresh fruit bunch (FFB) production recovery, research and development efforts and integrated operations.

The research house also gave a 5% premium to Sime Darby Plantation’s forward price-to-earnings ratio (PER) at 26 times against the 25 times of average valuation given to its integrated peers, namely IOI Corp and Kuala Lumpur Kepong Bhd.

However, Kenanga Research said Sime Darby Plantation’s high net gearing of 0.56 times may preclude mergers and acquisitions and previous production setbacks have pushed up unit production cost.

With it being the largest plantation company (by planted area) and top three in the world for milling capacity, FFB production and refining capacity as well as producing 4% of global palm oil production of which 98% is certified sustainable palm oil (CSPO), the research house said this affords the group a pricing premium of an estimated US$20/metric ton (MT) or more depending on oil grade.

Kenanga Research also highlighted that as an integrated planter with both upstream plantations and downstream manufacturing, Sime Darby Plantation’s earnings are less affected by crude palm oil price movements as lower prices lead to lower downstream feedstock cost.

Sime Darby Plantation’s share price gained 52 sen or 9.5% to close at RM6 last Friday on some 18.3 million shares done.