Sime Darby Plantation reported its 9MFY23 core earnings, however, MIDF noted that it had softened despite decent performance due to a combination of higher average CPO price realised, high peak crops seasonality, and intensive rehabilitation efforts that have been taken. Conversely, profit for refining margin which came from the downstream subsegment remained subdued, resulting in a lower core profit flat at RM728.0m.
The house said the results were within its expectations but below consensus’ accounting for 77% and 68% of respective full-year forecasts. For the upstream segment, during the quarter top and bottom lines improved to RM511.0m (+11.8%qoq, +8.0%yoy) and RM547.0m respectively, echoing higher profit contributions from Malaysia and Indonesia of RM228.0m (>100%yoy) and RM212.0m (+30.1%yoy), respectively. Operational front, while higher CPO volume from improved FFB production at 2.5m Mt (+20.5%qoq, +14.2%yoy) and higher OER of 21.12% helped to reduce the fixed cost incurred (due to high locked-in fertiliser cost in late 2022). Note that, average CPO and PK realised prices fell to RM3,777/ and RM1,721/Mt (-11.3%yoy) following the moderation of SBO prices.
Downstream’s PBIT fell significantly by -37.8%yoy to RM209.0m owing to the lower sales volume and utilisation rate in differentiated and bulk segment which have eased to 843’000 Mt (-8%yoy) and 57% respectively, due to slower volume demands in the Asia Pacific operations, although this was partially mitigated by strong results in the European operations.
MIDF says it tweaked the earnings forecast growth by +1.9%yoy/-17.9%yoy for FY24-25 to reflect the adjustment of FFB yield projection of 17.97Mt/ha in FY24 on the back of intensive rehabilitation efforts that have been taken this year. While softer FY25 adjustment due to moderation of CPO price that forecasted at RM3,3,400/Mt.
The house maintains NEUTRAL on the stock with a TP of RM4.10 based on PER of 30x which is nearly 5y average mean by pegging FY23F EPS of 13.7sen. MIDF is convinced of SDPL’s outlook, particularly in its downstream subsegment as sales volume and utilisation would remain slow due to weaker demand for palm-based products.
