The much-awaited US CBP’s modified Finding was finally issued, now permitting the importation of palm oil from SDPL into the US although the US is traditionally a negligible market for SDPL. While SDPL’s share price has largely priced in this expectation, Maybank IB views the announcement as nonetheless an affirmation of the right measures taken. As for its upcoming 4Q22 results, the research house expects no core earnings surprises.
A year later, the US CBP finally modified its Finding against SDPL (issued on 3 Feb) on forced labour at its MY plantations. Over the past two years, SDPL spent >500,000 man-hours to undertake reviews and made sweeping changes to its operations and governance. Among others, ~MYR82m was set aside to reimburse hidden recruitment fees to foreign
workers. SDPL reiterates its zero recruitment fee commitment.
In addition to its improved social obligations over the past two years, SDPL has also recently raised its ESG bar with its Environmental commitment to net-zero emissions by 2050. SDPL said it will take a three-pronged approach to achieve this: acceleration of its renewables programme, land use transformation (ie. expanding on existing reforestation, conversation, and biodiversity initiatives), and accelerating engagements with suppliers (to address Scope 3 emissions).
Maybank IB expects SDPL to make ~MYR0.6b in core NP in 4Q We expect SDPL to turn in better QoQ core net profit (NP) at e.MYR597m for 4Q22 (+47% QoQ, -10% YoY), which would be on track to meet our/consensus FY22 core NP forecasts of MYR2,271m/MYR2,254m. 4Q’s stronger QoQ performance will be driven by higher sales volume (especially in PNG and ID) owing to the huge inventory on its balance sheet as at end-Sept 2022, forward sales locked in earlier at higher than CPO spot ASP in 4Q, and lower unit cost of production owing to a slowdown in manuring activities in 4Q due to wet weather.
As for the reported 4Q’s FFB output of 2.073mt (-2% YoY, -4% QoQ), it was better than expected, lifting FY22 FFB output to 8.21mt (-10% YoY), at 103% of our forecast.
