• Overview. Sime Darby Plantation Berhad (SDPL) posted a core PBT of  RM483mn in 3Q22 (-48% YoY, -41% QoQ) as higher profit contribution from the Downstream segment partially offset the decline from Upstream segment due to lower production and average selling price (ASP) realised of CPO/PK during the period – Table 3. The encouraging result from the  Downstream segment was due to higher profits contribution from the bulk and differentiated segmentsfrom Asia Pacific operations despite recording lower sales volume and lower margins from European operations.

• Against estimates: Inline. SDPL’s 9M22 headline PATAMI of RM1,926mn was within our and consensus estimates. Adjusted for land disposal gain in  Malaysia and earned-out settlement for disposal of a previous subsidiary in Liberia (RM293mn), unrealised forex loss, fair value gains/losses on  commodities contract and forward FX contracts, SDPL posted a 9M22 core  PATAMI of RM1,612mn. Group PBIT of RM2.54bn (-1%) were cushioned by higher PBIT from Downstream segment (RM772mn, +>100%) and other operations (RM57mn, +33%), more than enough to compensate the lower  Upstream PBIT of RM1.7bn (-24%) – mainly due to higher costs and lower  FFB production in Malaysia due to prevailing harvester shortage.

• Outlook. We are cautious on SDPL performance for next year given volatile raw commodity prices and stiff competition which may pose a challenge to its overall business. This, may be added by the prolong harvester shortage issue given possible hiccup in recruitment process due to uncertain political situation in Malaysia. Note that harvester shortage has worsened given a ratio of 1:36ha against ideal of 1.22ha.

• Our call. Maintain a BUY call with TP of RM5.03 based on P/BV of 2.0x (historical low 5-yrs average) and FY23’s BV/share of RM2.51 as we apply a lower historical 5-yrs average P/B after assuming a likely slow-down in  CPO price and challenging business environment in 2023. Our TP offers a  16.7% upside potential from the current market price.

Source: BIMB Securities Research - 23 Nov 2022