PublicInvest Research

Author: PublicInvest   |   Latest post: Wed, 15 Jul 2020, 10:02 AM


Sime Darby Plantation- Brace For Tougher Outlook

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Sime Darby Plantation saw its 1QFY20 core earnings rise 44% YoY to RM124m on the back of stronger CPO prices, which outpaced the weaker FFB production. The results were within our and consensus expectations, making up 20% but it missed the street expectation by 3%. We cut our FY20-22F earnings projection by 5%-13% by reducing the margins to reflect the weaker CPO prices. No dividend was declared for the quarter. Meanwhile, a source from the Edge Malaysia reported that the Chairman of the group was told to make way for a new political appointee. Maintain Underperform call with a lower TP of RM3.64 as current valuations are deemed expensive, trading at a forward PER of 43x.

  • 1QFY20 revenue (QoQ: -9.8%, YoY: +1.5%). The group’s sales grew 1.5% YoY to RM3bn, led by stronger palm oil sales from upstream Malaysia (+31%) upstream Indonesia (+3.5%) and downstream (+3.1%), which were partly offset weaker sales from upstream PNG (-23.5%) segment. The stronger upstream sales in Malaysia and Indonesia were driven by improved CPO prices though a lower FFB production was recorded. Average group CPO prices rose 29.5% YoY to RM2,605/mt, contributed by Malaysia (RM2,491/mt), Indonesia (RM2,613/mt) and PNG/SI (RM2,828/mt). FFB production fell 16% YoY to 2.1m mt, dragged by Malaysia (-23% YoY), Indonesia (-3% YoY) and PNG/SI (-9% YoY). The poor FFB production was due to prolonged dry weather in Malaysia and heavy rainfall in PNG/SI. Meanwhile, the stronger downstream sales were led by higher sales volume in differentiated businesses, which were partly offset by weaker performance from Bulk and Trading operations due to lower demand from China and India.
  • 1QFY20 core earnings jumped 44% YoY to RM124m. Stripping out the i) gains on land disposal of 366ha in northern region amounting to RM262m ii) unrealized FX losses of RM63m, iii) fair value gains in commodity contracts amounting to RM174m and iv) deferred tax of RM74m due to the downward revision in Indonesian corporate income tax, the Group’s core earnings jumped to RM124m. The stronger results were contributed by upstream Malaysia (+54% YoY), Indonesia (+333%), and a strong turnaround in upstream PNG with a profit contribution of RM74m on the back of stronger plantation margin. Meanwhile, the steady growth in downstream segment, which rose 5% YoY to RM89m, was led by differentiated business, which offset the loss-making bulking business.
  • Outlook guidance. Management has reaffirmed its single-digit FFB production growth target for FY20 after seeing a decline of 6.3% in FY19. It expects to see the prolonged impact on its Malaysian production from the 4- month drought last year. The all-in CPO cost of production for 1QFY20 stood at RM1,700/mt (Malaysia: RM1,600/mt, Indonesia: RM1,700/mt and PNG/SI: RM1,750/mt) and it is targeting full-year CPO cost would fall below the first quarter level due to the recovery of production. On the replanting policy, it targets a less aggressive target of 4% for Malaysia and below 6% for Indonesia. On the CPO price outlook, management targets a range of RM2,200-2,300/mt for the remaining of the quarters.

Source: PublicInvest Research - 27 May 2020

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