Sarawak Palm Oil Bhd's (SOP) overall environmental, social, and corporate governance (ESG) risk factors to be medium as the policy's credentials appear to be relatively good, with transparent and detailed sustainability disclosures.
Maybank Investment Bank Bhd (Maybank IB) also noted that SOP's geographical exposure to just Sarawak also helps limit the company's ESG risks relative to peers.
The bank-backed research firm also noted that while SOP is not yet an RSPO (Roundtable on Sustainable Palm Oil) member, it has good and sustainable Practices with zero burning and No Deforestation, No Peat and No Exploitation (NDPE) commitments at its core.
SOP is 100 per cent MSPO (Malaysian Sustainable Palm Oil) certified since 2019, six of its seven palm oil mills have been International Sustainability & Carbon Certification certified since 2017.
To reduce greenhouse gas emissions (GHG) emissions, SOP plans to install methane capture facilities for all seven palm oil mills (presently just one installed) but has not yet specified an execution timeline.
SOP is an integrated plantation company predominantly in an oil palm plantation, refinery, biodiesel, phytonutrient plant, and consumer products based in Sarawak.
The company also has a property development arm that is also helping to unlock the value of some of its well-located estates near Miri, Sarawak.
SOP has 121,994 ha of land concession (about 1.7x the size of Singapore), of which 87,964 ha are planted with oil palm in 2020.
Moving on, Maybank IB also noted that in 2019, SOP introduced an in-house '555 Target' to achieve five tonnes per hectare of palm oil in five years with RM5 billion in market capitalisation.
The ambitious target is aimed at sweating its assets by achieving optimum fresh fruit brunch (FFB) yield and oil extraction rate (OER) via best management practices to minimise the impact on the planet.
Maybank IB maintains a Buy call for SOP with an unchanged target price of RM5.60.
Key risks to the palm oil sector and SOP are weather anomalies resulting in poorer-than-expected output growth, lower-than-expected crude palm oil (CPO) price achieved and negative policies imposed by import countries.
Other risks also include unfriendly policies imposed by the Malaysian and Indonesian government on upstream or downstream segments, sharply lower crude oil prices, which makes palm biodiesel demand not viable, and weaker competing oil prices, like soybean and rapeseed.