SDPlant’s FY18 core net profit of RM1.2bn (-8.8%) came in broadly in line, accounting for ~95% of our and consensus forecasts. Recommended DPS of 14 sen (8 sen final and 6 sen special), bringing total DPS for FY18 to 17.5 sen, translating to dividend yield of 3.3%. During the results briefing, management also shared that it is current weighing several options on its Liberia operations, which include, amongst other, exiting the business given the tough operating environment there. Maintain our earnings forecasts, SOP-derived TP of RM5.72, and HOLD rating on SDPlant.

Broadly in line. 4QFY18 core net profit of RM241m (QoQ: -28.1%; YoY: -53.7%) took FY18 core net profit to RM1.2bn (-8.8%). The results came in broadly within expectations, accounting for ~95% of our and consensus forecasts.

Dividend. Recommended final DPS of 8 sen and special DPS of 6 sen (ex-date: 18 Sep 18), bringing total DPS for FY18 to 17.5 sen, which is above total DPS of 13 sen we projected for FY18. Besides, SDPlant proposed a dividend reinvestment plan (DRP), which will grant shareholders the options to reinvest their dividends in lieu of cash dividends.

QoQ. 4QFY18 core net profit declined by 28.1% to RM241m, mainly on lower realised palm product prices, lower FFB production in Malaysia, and the absence of dividend income received from an investment.

YoY. 4QFY18 core net profit declined by 53.7% to RM241m mainly on the back of lower FFB production (arising mainly from lower FFB output contribution from Malaysian estates), lower realised palm product prices, but partly mitigated by better downstream performance (arising from higher sales volume, and better margin of differentiated products at the specialty refinery segment).

YTD. FY18 core net profit declined by 8.8% to RM1.2bn, as higher FFB output (boosted mainly by higher contribution from Malaysian estates) and improved downstream performance (arising from higher sales volumes and better margins from specialty products) were more than offset by lower realised palm product prices.

Exploring options for Liberia operations. Following RM202m impairment on its Liberia operations in FY17, SDPlant incurred an additional RM112m impairment on Liberia operations in 4QFY18. Given the challenging operating environment management shared that it is currently weighing several options for its Liberia operations (which include, amongst others, exiting business in Liberia), and a decision will be made by end-2018.

More details on acquisition of MFCL. Recall SDPlant recently announced that it has acquired Markham Farming Company Ltd (MFCL) for US$63.6m. During the briefing, management shared that the acquisition price was arrived based on (i) EV/ha of US$6,389 (or circa RM26,000) for MFCL’s total plantable area of 5,713 ha, and (ii) EV/EBITDA of 3.6x for its 2 copra mills (with combined throughput capacity of 55,000 mt p.a.)

Forecast. Maintain as the Results Were Inline.

Maintain HOLD, TP: RM5.72. Maintain HOLD rating with unchanged sum-of-parts TP of RM5.72 (see Figure #2).

Source: Hong Leong Investment Bank Research - 3 Sept 2018