Investment Highlights

• We maintain SELL on Sime Darby Plantation (SDP) with an unchanged fair value of RM4.40/share. Our fair value is based on FY23F PE of 18x. We ascribe a 3-star ESG rating to SDP.

• SDP’s 1QFY22 net profit was 20.5% above our FY22F earnings and 10.8% above consensus estimates. We raise SDP’s FY22F net profit by 15.2% to account for a higher average CPO price of RM4,500/tonne in FY22F vs. RM4,000/tonne previously.

• SDP’s core net profit (ex-disposal gains of land of RM47mil in 1QFY22) climbed by 56.8% to RM671mil in 1QFY22 from RM428mil in 1QFY21 underpinned by robust palm product prices. We also think that there may have been a write-back of provision in PNG in 1QFY22 as the division’s EBIT of RM462mil was almost the same as the revenue of RM458mil.

• SDP’s upstream EBIT expanded to RM839.0mil in 1QFY22 (including PNG’s potential provision write-back) from RM543mil in 1QFY21. Indonesia accounted for 18.2% of upstream EBIT in 1QFY22 while PNG made up a large 55.1%. Malaysia accounted for the balance 26.7% of upstream EBIT in 1QFY22.

• SDP recorded an average CPO price of RM4,465/tonne in 1QFY22 vs. RM3,185/tonne in 1QFY21. The average CPO price realised of RM4,465/tonne in 1QFY22 was below the MPOB’s average spot price of RM6,051/tonne due to the Indonesia price discount and some forward sales of CPO carried out at low prices in Malaysia.

• In Malaysia, average CPO price realised was RM4,122/tonne in 1QFY22 while in Indonesia, average CPO price realised was RM4,112/tonne. The PNG division registered an average CPO price of RM5,527/tonne in 1QFY22.

• SDP’s FFB production growth was -13.0% YoY in 1QFY22. The Malaysian division registered a 16% fall in FFB output in 1QFY22 while in Indonesia, FFB production plunged by 19%. The PNG unit eked out a 1% rise in FFB output in 1QFY22.

• SDP’s cost of production (cost to customers) rose to RM2,300/tonne in 1QFY22 from RM1,800/tonne in 1QFY21 dragged by higher cost of fertiliser.

• Downstream (trading, bulk and differentiated products) EBIT increased to RM132mil in 1QFY22 from RM107mil in 1QFY21. This was driven mainly by RSPO premiums in the AsiaPacific region. EBIT margin edged down to 3.3% in 1QFY22 from 3.4% in 1QFY21.

Source: AmInvest Research - 23 May 2022