• Overview. SDPL’s recorded a LATAMI of RM45m in 4Q19 against PATAMI of RM32m and RM172m in 3Q19 and 4Q18 respectively mainly due to lower contribution from upstream segment and higher effective tax rate during the period.

• Key highlights. For FY19, the Group’s discontinuing operations, i.e. Liberian operations and joint ventures in oleo-chemical and biomass business, incurred a net loss of RM322m (+56%) mainly due to higher impairment of assets in Liberia of RM235m vs. RM127m in FY18.

• Against estimates: below. FY19 profit came in below ours estimates, as PATAMI dropped 83% to RM122m on account of lower revenue from all segments compounded by lower margins from group’s upstream segments. Lower profit from upstream segment was due to lower CPO and PK price realized as well as lower FFB, CPO and PK production during the period (Table 3).

• Dividend. SDPL has declared final dividend of 1.0sen to be payable on 22 May 2020, translating to DY of 0.2%.

• Outlook. Moving to 1Q20, we expect there might be high possibility of margins squeeze in downstream and upstream segments on account of lower production in upstream segment, whilst price and demand concerns in downstream segments.

• Our call. Maintain HOLD with new TP of RM4.83 (RM5.00 previously) based on P/BV of 2.5x and BV/share of RM1.93. Given the earnings results, we revised our earnings forecast for FY20 and FY21 lower to RM472m and RM683m respectively from RM797m and RM851m previously as we adjust our FFB and CPO production assumption lower with cost of sales and operating expenses assumptions higher.

Source: BIMB Securities Research - 2 Mar 2020