Temporary anti-dumping measures on ethanolamine products produced in the Malaysia, Saudi Arabia, Thailand and the United States is also being introduced.
PETALING JAYA: Moody’s Investors Service is bullish on Sime Darby Plantation Bhd
(SDP) despite its lower earnings in fiscal 2018.
The global credit rating company said it expect SDP to generate an annual reported profit before interest and tax (PBIT) of around RM1.7bil over the next two years based on its crude palm oil (CPO) price assumption of RM2,300 a ton.
“While downstream operations, which include bulk refineries, specialty fats, and oleochemicals continue to grow, SDP’s upstream operations will contribute more than three quarters of total PBIT over the next two years,’’ it noted.
Consolidated PBIT declined 9% year-on-year to RM2bil driven by weakness in SDP’s upstream plantations business, consisting of CPO and palm kernel sales, as CPO and palm kernel prices declined 11% and 13%, respectively.
Moody’s said based on its CPO price assumption of RM2,300 a ton, it expect SDP’s adjusted leverage to be around 2.8 times and interest coverage
around 5.8 times over the next 12-18 months.
“While SDP will periodically seek similar-sized investments, we expect its management to maintain a conservative approach toward further investments such that adjusted leverage remains below its 3.5 times downgrade trigger over a sustained period, it added.
SDP is also conducting a strategic review of its loss-making operations in Liberia, which includes collaborating with other domestic
palm oil companies or selling the business outright.
In August 2018, SDP acquired Markham Farming Company Limited in Papua New Guinea (PNG), that country’s largest exporter of coconut oil, for $52.6 million (MYR216 million). Markham Farming has 6,110 hectares of agricultural land near PNG’s largest port, and two copra mills with an annual capacity of 55,000 tons.
The acquisition is small, representing around 1% of SDP’s total assets, but it will increase SDP’s oil palm plantations in PNG and help
SDP expand its downstream lauric oils business by providing coconut oil as a feedstock to its refineries.
The plantation company declared a final dividend for fiscal 2018 of RM544mil in addition to its interim dividend of RM238 paid during the year.
It also declared a special dividend of RM408mil from its RM491mil non-recurring income during the year, which includes gains on sale of land.
The final and special dividends will be paid in fiscal 2019. The special dividend is credit negative as it will increase the company’s cash
needs over the next 12 months.
“However, the cash outflow for dividends will be lower than total dividends declared because SDP plans to establish a dividend reinvestment plan, which allows shareholders to reinvest their cash dividends into additional shares.
“SDP’s cash balance, along with projected cash flow from operations, will not be sufficient to meet its cash needs, including scheduled
debt maturities, capital spending and dividends.
“However, we expect SDP to roll over its short-term obligations, if required, as the company enjoys superior access to funding from
domestic and international banks,’’ Moody’s said.
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