KUALA LUMPUR: MARC Ratings Bhd has affirmed Sime Darby Plantation Bhd's (SD Plantation) corporate credit rating at AAA and its perpetual subordinated sukuk programme's rating of up to RM3.0 billion at AAIS.
Both ratings carry a stable outlook.
The rating agency stated that the affirmed corporate credit rating reflects SD Plantation's strong cash flow generating ability from its geographically sizeable and integrated oil palm operations, underpinned by its longstanding operating track record in the oil palm plantation industry.
"The rating benefits from a one-notch uplift on implicit support from parent Permodalan Nasional Berhad (PNB), a government-linked investment company," it said in a statement.
MARC Rating also noted that the tight supply of vegetable oil globally, mainly due to the Russia-Ukraine conflict and
Indonesia's export ban on palm oil had elevated crude palm oil (CPO) prices in the first half of 2022 (1H22), although this has since tapered due to an increase in palm oil inventories.
"SD Plantation realised an average CPO price of RM4,868 per tonne in 1H22, which boosted revenue year-on-year (YoY) to RM10 billion and pre-tax profit to RM2.2 billion.
"Labour shortages for its Malaysian operations, however, led to extended harvesting intervals which impacted overall fresh fruit bunch production, resulting in a 15 per cent YoY dip to 4.0 million tonnes in 1H22," said MARC Ratings.
To address this issue, MARC Ratings noted that SD Plantation increased automation and mechanisation in key upstream processes and has a planned capital expenditure of RM200 million to RM300 million per annum.
The volatility of CPO prices and the persistent labour issues in its Malaysian operations that have impacted operating efficiencies remain moderating factors to the rating.
It added that cash flow from operations (CFO) declined YoY slightly to RM1.1 billion due to higher input costs.
"The group's liquidity position, with an unrestricted cash balance of RM734 million as of end-June 2022, remains strong and is sufficient to meet its short-term loan obligations.
"Group adjusted borrowings of RM8 billion as of end-June 2022 translated into a gross debt-to-equity (DE) ratio of 0.45 times (net DE ratio: 0.41x), which is within our forecast.
"We understand that ongoing disposals of non-core assets that would generate up to RM3.1 billion in sales proceeds are expected to reduce the gross DE ratio to about 0.3 times by end-2023," added MARC Ratings.