• Overview. SDPL’s 2Q21 core PBT improved significantly to RM892m against RM212m in 2Q20 mainly attributed to 1) higher contribution from upstream operations, as margin increased significantly (refer Table 2) on higher average selling price realised of palm products, 2) improved result from Downstream segment on higher margins and market prices from Asia Pacific bulk business and its refineries in Europe and Africa, and 3) lower finance cost of RM21m vs. RM31m in 2Q20. On quarterly basis, the improved results were driven by both its upstream and downstream segments on account of higher selling prices realised and better cost control.
   
• Against estimates: Above. For 1H21, adjusted for the FV losses/gains on commodities futures contract, forward forex contract, unrealised forex gain/losses, impairment, gain on disposal and write-off, totalling RM91m against RM616m in 1H20, core PBT came-in above our estimates.
   
• Dividend. SDPL has declared an interim DPS of 7.90sen (1H20: 4.0sen) to be payable on 12 Nov 2021, translating to DY of 2.0%.
   
• Outlook. Although ESG concerns puts pressure on valuations, in our opinion, certain context or scenario appear to be overplayed. We are expecting a better performance in subsequent quarters on higher price anticipated for palm product prices, as well as growth in FFB production especially from Indonesian estates.
   
• Our call. Given the encouraging results, we tweaked our FY21/22 earnings forecast higher to RM1,899m and RM1,661m respectively from RM1,391m and RM1,349m with unchanged TP of RM5.00 (P/B of 2.5x and BV/share of RM2.00); as we revisit our assumption on ASP of palm products, margins, cost and expenses to be more reflective to current and future expectations. We have raised our FY21/22 ASP forecast for CPO to RM3,577/MT and RM2,880/MT respectively from RM2,891/MT and RM2,592/MT previously.

Source: BIMB Securities Research - 18 Aug 2021