Stock Name: SIME
Company Name: SIME DARBY BHD
Plantation sector
Maintain overweight: The Malayan Agriculture Producers Association (Mapa) has agreed to increase the wages of 157,720 plantation workers by 10%. With the increase, the total guaranteed minimum earnings for plantation workers will be RM850 per month, comprising a minimum wage of RM650 per month and an additional remuneration of RM200 per month, the latter not subject to Employees Provident Fund and Social Security Organisation deductions.
The new wage structure will be implemented with effect from Sept 1 and will benefit 72,000 harvesters, 17,400 rubber tappers, 22,800 field employees, 9,700 palm oil mill employees, 13,370 general employees and 22,000 non-executive staff.
On June 6, Sime Darby announced a RM200 per month wage increase for some 37,000 estate workers and non-executive staff of the group (including harvesters, tappers, general workers, estate and mill office staff, and auxiliary police personnel) with effect from July 1 under a voluntary effort to give its workers a better deal and increase the quality of their lives.
As labour cost is about 30% of cost of production (COP), the agreed wage increase is expected to increase COP by about RM30 per tonne for bigger planters and about RM40 per tonne for smaller planters. There will be some offset from productivity gains following the wage increase, which will also help to address the persistent labour shortage faced by the industry. As such, we expect the impact on net profit forecasts to be no more than 2% to 3%.
June 2011 quarter results are due for release in the next two to three weeks, while global equity and commodity markets have been highly volatile in the last few days, leading to sharp corrections in stock and commodity prices.
Crude palm oil'' futures have finally dipped below RM3,000 per tonne after nine months, closing at RM2,954 per tonne yesterday, but still with a high year-to-date average of about RM3,400 against our assumption of RM3,200. Pending the release of the June 2011 quarter results, we maintain our profit forecasts.
Target prices as well as stock and sector 'overweight' ratings are also unchanged as we maintain our market price-earnings ratio rating and year-end KLCI target of 1,630. ' Affin IB Research, Aug 10
This article appeared in The Edge Financial Daily, August 11, 2011.
Company Name: SIME DARBY BHD
| Research House: AFFIN | Price Call: BUY | Target Price: 11.09 |
Plantation sector
Maintain overweight: The Malayan Agriculture Producers Association (Mapa) has agreed to increase the wages of 157,720 plantation workers by 10%. With the increase, the total guaranteed minimum earnings for plantation workers will be RM850 per month, comprising a minimum wage of RM650 per month and an additional remuneration of RM200 per month, the latter not subject to Employees Provident Fund and Social Security Organisation deductions.
The new wage structure will be implemented with effect from Sept 1 and will benefit 72,000 harvesters, 17,400 rubber tappers, 22,800 field employees, 9,700 palm oil mill employees, 13,370 general employees and 22,000 non-executive staff.
On June 6, Sime Darby announced a RM200 per month wage increase for some 37,000 estate workers and non-executive staff of the group (including harvesters, tappers, general workers, estate and mill office staff, and auxiliary police personnel) with effect from July 1 under a voluntary effort to give its workers a better deal and increase the quality of their lives.
As labour cost is about 30% of cost of production (COP), the agreed wage increase is expected to increase COP by about RM30 per tonne for bigger planters and about RM40 per tonne for smaller planters. There will be some offset from productivity gains following the wage increase, which will also help to address the persistent labour shortage faced by the industry. As such, we expect the impact on net profit forecasts to be no more than 2% to 3%.
June 2011 quarter results are due for release in the next two to three weeks, while global equity and commodity markets have been highly volatile in the last few days, leading to sharp corrections in stock and commodity prices.
Crude palm oil'' futures have finally dipped below RM3,000 per tonne after nine months, closing at RM2,954 per tonne yesterday, but still with a high year-to-date average of about RM3,400 against our assumption of RM3,200. Pending the release of the June 2011 quarter results, we maintain our profit forecasts.
Target prices as well as stock and sector 'overweight' ratings are also unchanged as we maintain our market price-earnings ratio rating and year-end KLCI target of 1,630. ' Affin IB Research, Aug 10
This article appeared in The Edge Financial Daily, August 11, 2011.
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