Investment Highlights

• We maintain SELL on Sime Darby Plantation (SDP) with an unchanged fair value of RM3.65/share. Our fair value is based on a FY23F PE of 15x. We ascribe a 3-star ESG rating to SDP.

• On an annualised basis, SDP’s 9MFY22 core net profit (ex disposal gains) was 14% below our forecast and 19% below consensus. The Malaysian upstream division suffered a loss of RM145mil in 3QFY22, dragged by a higher cost of production and weak FFB output. We reduce SDP’s FY22E net profit by 18% to account for a lower EBIT margin and an 11% fall in group FFB production.
• SDP’s core net profit fell by 32% to RM396mil in 3QFY22 from RM584mil in 2QFY22. Apart from the loss in Malaysia, EBIT of the PNG division plunged by 94% QoQ to RM29mil in 3QFY22 due to valuation losses on inventory.
• Comparing 9MFY22 against 9MFY21, SDP’s core net profit rose by 8% to RM1.7bil, driven by the downstream division. In spite of higher CPO prices, upstream EBIT contracted by 45% YoY to RM1.2bil in 9MFY22.

• EBIT of the upstream division in Malaysia dived by 80% YoY to RM145mil in 9MFY22 as cost of production increased and FFB production slid by 26%. In Indonesia, EBIT fell by 26% YoY to RM624mil in 9MFY22 as sales were affected by the CPO export ban in 2Q2022.

• SDP’s group FFB production shrank by 12% YoY in 9MFY22. The Malaysian division was hit by a shortage of estate workers while in Indonesia, FFB harvesting was affected by floods.

• Average CPO price realised improved to RM4,648/tonne in 9MFY22 from RM3,545/tonne in 9MFY21. This was below MPOB average spot price of RM5,531/tonne as SDP sold forward some of its CPO in Malaysia at lower prices. Also in Indonesia, there is a price discount of more than RM1,000/tonne.

• Downstream EBIT (trading, bulk and differentiated products) surged by more than 2x to RM711mil in 9MFY22 on the back of increased sales in the Asia Pacific region. EBIT margin rose to 5% in 9MFY22 from 2.3% in 9MFY21.

• SDP is currently trading at an unjustified FY23F PE of 18x, which is higher than its 2-year average of 17x.

Source: AmInvest Research - 23 Nov 2022