SDP Refinery Fire; Maybank Sees Minimal Impact On Financials

A fire broke out at one of SDPL’s smaller refinery in Pasir Gudang, Johor over the weekend. Maybank IB said it understands the refinery is relatively well insured. As the plant is said to be making small losses over the past two years, Maybank IB in its report reckon the financial impact to SDPL should be minimal. The house also said it makes no change to uts EPS forecasts. SDPL remains a HOLD with a TP of MYR4.51 (on 0.5x RNAV). We prefer SOP MK (BUY, CP: MYR3.01, TP: MYR3.18).

The extent of plant damage is unknown
Local media reported on 27 April that a fire broke out at a processing plant in Pasir Gudang Industrial Area belonging to Sime Darby Plantation (SDPL MK). The fire had occurred on the 2nd floor of a 900 sq m building. It razed 40% of the structure. The cause of the fire remained unknown at the time of reporting. Fortunately, no casualty was reported. However, it remains unclear the extent of the plant damage, and how long it will be out of commissioning.
The refinery is small relative to group’s capacity

The house said it gathers the Pasir Gudang plant is the Differentiated Food plant with a refining capacity of 0.165m tpa. In Malaysia, SDPL has 4 refining plants, comprising 2 Bulk and 2 Differentiated Food refining plants with a combined capacity of 1.58m tpa. This Pasir Gudang plant is the smallest of the 4 refining plants in Malaysia. Globally, SDPL has around 3.8m tpa of refining capacities, of which 1.98m tpa is Bulk Processing, and 1.82m tpa being Differentiated Food. The Pasir Gudang plant’s capacity is just 4% of group capacity but 9% of total Differentiated Food capacity.

Insurance apparently covers consequential losses too
While Differentiated Food refineries were more profitable than Bulk refining in FY23 for SDPL, we understand this Pasir Gudang plant was making small losses over the past 2 years. Furthermore, most of the profits from SDPL’s refining segment in FY23 came from its European refining operations. Maybank IB said it understands the plant is insured and even covers for
consequential losses. Hence, t reckons the financial impact to SDPL should be minimal.

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