SDPlant’s 4Q19 core net profit of RM74m (QoQ: +8.8%; YoY: -47.5%) took FY19 core net profit to RM168m. The results beat our expectation, exceeding our estimate by 12.6%, due mainly to better-than-expected performance at downstream segment. Despite the better-than-expected set of FY19 core performance, we lower our FY20-21 core net profit forecasts by 17.0% and 15.9%, mainly to account for lower FFB output and marginally higher production cost assumptions at upstream plantation segment. Post downward revision in our core net profit forecasts, we lower our SOP-derived TP by 15.3% to RM4.55. We maintain our HOLD rating on the stock.

Above our expectation. 4Q19 core net profit of RM74m (QoQ: +8.8%; YoY: -47.5%) took FY19 core net profit to RM168m. The results beat our expectation, exceeding our estimate by 12.6%, due mainly to better-than-expected performance at downstream segment. Against consensus, the results came in below, accounting for only 83.2% of consensus estimate.

Exceptional items (EI). During the quarter, SDPlant recorded total EIs of RM132m, which include (i) RM140m unrealised loss from fair value of commodity hedge at upstream plantation segment, (ii) RM35m unrealised loss from commodity contracts in Europe, (iii) RM32m fair value gain on derivatives at downstream segment, and (iv) RM11m gain from disposal of land in Malaysia and Thailand.

Dividend. Declared final DPS of 1 sen in FY19 (vs. 1.7 sen in FY18), which will go ex on 9 May 2020.

QoQ. 4Q19 core net profit increased by 8.8% to RM74m, as lower FFB output (-8.6%) was more than mitigated by higher realised average CPO price (+12.6%) and higher profits from both bulk and differentiated refineries in all countries (except for Africa and Europe).

YoY. 4Q19 core net profit declined by 47.5% to RM74m, dragged mainly by sharply lower FFB output and weaker contribution from downstream segment (arising from stiff competition for differentiated business in Africa), but partly mitigated by higher realised average CPO price (+19.7%).

YTD. FY19 core net profit plunged 76.4% to RM168m, dragged mainly by lower realised average palm product prices and FFB output at upstream plantation segment and a 24% increase in finance cost.

Asset monetisation exercise. Management shared that asset monetisation exercise (which involves disposal of land, non-core and non-strategic assets, non-profitable assets, and low yielding assets, with total value of more than RM1bn) has been delayed to FY20, due to requirement of approvals and re-zoning exercise.

Forecast. Despite the better-than-expected set of FY19 core performance, we lower our FY20-21 core net profit forecasts by 17.0% and 15.9%, mainly to account for lower FFB output and marginally higher production cost assumptions at upstream plantation segment.

Maintain HOLD, with lower SOP-derived TP of RM4.55. Post downward revision in our core net profit forecasts, we lower our SOP-derived TP by 15.3% to RM4.55. We maintain our HOLD rating on the stock.

Source: Hong Leong Investment Bank Research - 9 Mar 2020