Results

• Within expectations. 2QFY18 core net profit of RM379m (qoq: +12%; yoy: +53%) took 1HFY18 core net profit to RM626m (+33%), accounting for 48-49% of consensus and our full-year forecasts.

Deviation

• Broadly in line.

Dividends

• Declared interim DPS of 3.5 sen (ex-date: 20 Apr 2018). For the full-year, we are projecting a total DPS of 13 sen.

Highlights

• QoQ… 2QFY18 core net profit rose 53% to RM379m, as weaker downstream performance was more than mitigated by better upstream performance (arising from higher FFB production and CPO sales), recognition of dividend income from an investment, and lower tax expense.
• YoY… 2QFY18 core net profit increased by 12% to RM379m, as weaker downstream performance (arising from sharply lower CPO prices and changes in export/import duty structure of both importing and exporting countries) was more than mitigated by improved upstream performance (arising from improved FFB production).
• YTD… 1HFY18 core net profit rose 33% to RM626m, driven mainly by improved upstream performance (arising from higher CPO sales volume), but partly offset by weaker downstream performance.
• Not in hurry to reduce stake in NBPOL… Given SDPlant’s healthy balance sheet and current market condition (which may not be suitable to list its PNG unit).
• Confirms interest in Ruchi Soya… SDPlant confirmed that it has made an expression of interest (EOI) in Ruchi Soya Industries (an edible oil firm in India, which is currently undergoing bankruptcy proceedings, and has a 25% market share in India). While management is cognizant of the challenging operating environment in India, it also notes that India is an important country to SDPlant (as India is now the largest palm oil consuming country in the world).

Risks

• (1) Lower-than-expected FFB production; (2) Sharp decline in prices of edible oils (including palm oil); (3) Acute labour shortage; (4) Imposition of import tariffs/duties by major palm oil consuming countries; and (5) Volatile raw material prices, which will in turn hurt profitability of downstream segment.

Forecasts

• Maintained.

Rating

HOLD ↔

• While we like SDPlant for its established market presence and track record in the oil palm plantation industry, sound management team and low EV/ha (relative to its large cap peers), we believe near-term upside is capped by high P/E valuations.

Valuation

• Maintain sum-of-parts TP of RM5.72 .

Source: Hong Leong Investment Bank Research - 23 Feb 2018