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 Norsaidatul Najwa Mohd Shaharmi
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 New Straits Times
 Asian planters with operating strengths have edge in cyclical industry: Fitch

08.09.2020 (www.nst.com.my) - KUALA LUMPUR: Producers with operating strengths based on factors such as plantation profiles, productivity, cost position and vertical integration, and conservative financial metrics are better placed to navigate the cyclicality and price volatility of the crude palm oil industry, said Fitch Ratings.

The rating agency said the companies would have better credit profiles as a result.

Fitch said the size and location of Sime Darby Plantation Bhd's (SDP) plantations near urban areas in Malaysia differentiated it from rated peers and drove its investment grade rating.

"SDP is the world's largest palm oil company by planted area, which is mainly in Malaysia and Indonesia.

"A large chunk of its acreage in Malaysia is near urban areas, which can be sold to provide additional financial flexibility. This bolsters an already strong coverage and liquidity position," the firm said in a report today.

However, Fitch said SDP's business profile was weakened by a large share of old trees in Indonesia, which reduced the productivity of fresh fruit bunches, and higher production costs in Malaysia and Papua New Guinea."

On the other hand, Fitch said while Golden Agri-Resources Ltd (GAR) has the second-largest planted area in the world, it has a below-average cost position and its plantations are older.

GAR's financial profile is also weaker, with net debt to earnings before interest, taxes, depreciation, and amortisation (Ebitda) of over 8x in 2019 and Ebitda over interest of 2.5x.

"These factors form the basis of Fitch's rating of 'A-(idn)' with Stable Outlook on PT Ivo Mas Tunggal and PT Sawit Mas Sejahtera, which are GAR's subsidiaries and rated based on its consolidated profile," it said.

Fitch said PT Sawit Sumbermas Sarana Tbk's (SSMS) was rated based on the consolidated profile of its parent PT Citra Borneo Indah (CBI).

It said the financial profile was very weak with leverage of over 10x and coverage below 1x in 2019.

"CBI's complex group structure and extensive related-party transactions also hurt SSMS's credit profile.

"These negate SSMS's moderate business profile, marked by concentrated acreage, above-average productivity, an average cost position and significant, albeit unprofitable, refining capacity," it said.

Meanwhile, Fitch said PT Tunas Baru Lampung Tbk (TBLA) was small by planted acreage, and its credit profile was affected by volatile working-capital flows and capex that had often been higher than its expectations.

"However, TBLA benefits from a very high degree of business diversification due to its large CPO (crude palm oil) refining capacity as well as significant Ebitda contribution from sugar sales," it said.


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