Overview. SDPL’s 3Q21 PBT increased significantly to RM904m against RM311m in 3Q20 as higher profit contribution from Upstream segment is more than enough to compensate the decline in profits in the Downstream segment. The higher profit contribution from the Upstream segment was mainly due to 1) higher ASP realised of palm products (Table 3), and 2) improved CPO production by 3.8% yoy to 606,482 tonnes on higher oil extraction rate (OER) of 21.59% as opposed to 21.27% in 3Q20. Gain on Government acquisition of land amounting RM36m and RM5m share of profits from associates also aided to the better results. On quarterly basis, the lower PBT was due to lower profit contributions from Downstream segment on declining Asia Pacific’s bulk operations and loss suffered by the European refineries as compared to profits generated in 2Q21. This was also aided by higher finance costs and lower share of profits from associates.

Against estimates: Above. 9M21’s core PBT of RM2.6bn was above our expectations at 95% of our full year forecast, mainly due to higher profits contribution from all segments, aided by lower finance costs and higher share of profits from associates.

Outlook. We are expecting a better performance in subsequent quarters given 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 RM2,527m and RM1,742m respectively from RM1,899m and RM1,661m 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, costs and expenses including tax and levy to be more reflective to current and future expectations. We have raised our FY21/22 average ASP forecast for CPO to RM3,850/MT and RM2,985MT respectively from RM3,577/MT and RM2,880/MT previously.

Source: BIMB Securities Research - 19 Nov 2021