• Maintain HOLD (TP: RM4.80). Sime Darby Plantations Bhd (SDPL) 9M23 net profit of RM1.66bn (-14% YoY) exceeded both our estimates and consensus expectations, primarily driven by RM1,072mn in gains from land disposal in Malaysia and the divestment of subsidiaries in Indonesia. The deviation from our projection was mainly due to an overprovision we made for operating expenses and the gains from the land disposals. SDPL declared 2nd interim DPS of 5.70sen (9M23: 8.95sen, compared to 10.0sen in 9M22), equivalent to a 2% yield at the current price. In light of these results, we have adjusted our FY23 and FY24 earnings forecasts higher to RM2.16bn and RM1.3bn, respectively, from RM689mn and RM550mn previously. While we anticipate sustainable performance for this year, the risk of volatile raw commodity prices, subdued demand due to global economic uncertainties, and intensified competition in the edible oils market may pose challenges to SDPL's overall business outlook. Maintain a HOLD call with new Target Price of RM4.80 vs. RM4.60 previously; based on P/BV of 1.89x and to FY2425F BV/share of RM2.54.

• Key highlights. Upstream Malaysia returned to profitability in 3Q23 after two consecutive quarters in the red, recording a core profit of RM228mn. This turnaround was primarily driven by the recovery in Fresh Fruit Bunch (FFB) production, notably in Malaysia, which experienced a remarkable increase of 43% QoQ and 38% YoY, reaching 1.24mn MT. Consequently, this substantial improvement in FFB production contributed to a significant boost in the Group's upstream segment profit, reaching RM547mn, reflecting a growth of over 100% both QoQ and YoY

• Outlook. We anticipate a sustainable performance for this year, mainly driven by higher upstream earnings especially from Malaysian estates, grounded in the expected improvement in productions, encouraging ASP of palm products and lower costs, though will be moderated by weaker downstream earnings due to lower margins and demand. Note that SDPL is guiding for a single-digit FFB growth for Indonesian estates, mainly influenced by a slight reduction in production attributed to dry weather conditions, especially in Kalimantan and Southern Sumatera.

Source: BIMB Securities Research - 27 Nov 2023