Sime Darby Plantation saw its FY21 core earnings surging 161% YoY to RM2.3bn on the back of stronger earnings contribution from all core businesses except upstream Malaysia. The results made up 108% and 102% of our and the consensus full-year expectations, respectively. The only positive surprise is the downstream operation, which was boosted by a 5-fold jump in bulk earnings as a result of favourable price movements and higher exports to destination markets. A bumper DPS of 12.4sen was declared for the final quarter, bringing the full year DPS to 22.41sen. Maintain Neutral with an unchanged TP of RM5.09.

• 4QFY21 revenue (QoQ: +9.7%, YoY: +52.5%). The group’s sales leapt 52.5% YoY to RM5.5bn, driven by stronger sales contributions from upstream Indonesia (YoY: +91.8%), downstream (YoY: +42.6%) and a surge in upstream PNG sales, which were partly offset by weaker sales from upstream Malaysia (YoY: -16.3%). 4QFY21 Average CPO prices jumped 57% YoY to RM4,179/mt (FY21: RM3,711/mt, YoY: +47%), contributed by Malaysia (RM3,693/mt), Indonesia (RM4,062/mt) and PNG (RM5,095/mt). 4QFY21 FFB production fell 7.4% YoY to 2.1m mt (FY21: 9.12m mt, YoY-1.6%), as weaker production recorded in Malaysia (YoY: -6%), was partially offset by an increase in both Indonesia (YoY: +3%) and PNG (YoY: +4%).

• 4QFY21 core earnings surged to RM598m. Stripping out the non-core items, the Group’s core earnings rose 60% YoY to RM598m boosted by stronger earnings contribution from all key segments. At the PBIT level, Upstream Malaysia jumped 88.3% YoY to RM145m. Upstream Indonesia rose 51% YoY to RM400m on the back of an increase in both FFB production and CPO prices. Upstream PNG/SI earnings ballooned 16-fold to RM413m, bolstered by a strong increase in palm oil margin. Downstream earnings gained 42% YoY to RM287m, after incurring losses in the differentiated and trading segments due to unrealized loss on commodity hedges as well as weaker margins.

• Outlook guidance. The Group is continuing its engagement with the US Customs and Border Protection (CBP) and expects to submit the report by Impactt in the 1Q 2022. US CBP will review the report and continues its engagement during the process with the intention of lifting the withhold release order. Commenting on the CPO price outlook, the Group foresees CPO price of RM5,000-5,500/mt in the 1H 2022 before softening to RM3,000- 3,500/mt as production recovers and easing labour shortage issue. Malaysian operation is facing worsening worker shortage issue (4QFY21: shortage of 8,300 workers vs 3QFY21: 8,000 workers). Cost of production for FY21 averaged at RM1,860/mt (Malaysia: RM2,000/mt, Indonesia: RM1,632/mt and PNG: RM1,900/mt). The Group expects overall production cost to increase by 10%-15% in FY22 due to more than 45% jump in fertilizer cost (NOP made up 50% of total fertilizer application). About 33% of the Peninsular production has been locked in at RM3,800/mt.

Source: PublicInvest Research - 21 Feb 2022