Share price has already priced in the worst?
Although the US is a negligible market to SDPL, it remains to be seen how SDPL’s key customers may react to the US CBP Finding. SDPL needs to be transparent in sharing Impactt’s assessment report and rectify any shortcomings soonest possible to restore confidence. Even as the financial impact to SDPL has been muted thus far, MYR9.1b (-26%) in market cap has been wiped off since the WRO. While the market appears to have priced in the worst, we do not rule out possible negative kneejerk reaction following this Finding. We maintain BUY and RNAV-TP of MYR4.47 on 0.45x RNAV peg.
US CBP finds sufficient info on forced labour in MY
Ahead of SDPL’s targeted submission by end-1Q22, the US CBP has surprised SDPL with the issuance of its Finding report on 28 Jan 2022. Through its own investigation, US CBP has determined that there is
sufficient information to support a finding that SDPL is using forced labour at its Malaysian plantations. The Finding will now allow CBP to seize products imported into the US. The authorities were previously
allowed to detain goods at US ports following the CBP WRO in Dec 2020.
Still targets submission by end 1Q22 for now
Recall that in our Oct 2021 update report, SDPL highlighted that Impactt’s team field works were delayed due to borders closure. The borders have since reopened and audit work resumed. SDPL now awaits Impactt’s audit and assessment report to be issued in mid-Feb 2022 before submitting a final report to US CBP for review by end 1Q22.
Unclear business impact but MYR9b mkt cap erased
According to SDPL, the Finding was primarily aimed at its Malaysian operations. Although SDPL has provided periodic updates to its key customers and no key clients have dropped SDPL thus far, it remains to be seen how customers may react to this Finding. Nonetheless, we believe a lot has already been priced in its share price relative to SDPL’s annual exports to the US of ~USD5m in the past. Conversely, CPO price has risen by 48% since end-2020, boosting near term earnings prospects.