FY20 core net profit of RM895m (vs. RM168m SPLY) beat our expectation, accounting for 107.5% of our estimate (consensus: 92.6%), due mainly to better than-expected performance at downstream segment. Declared final DPS of 5.42 sen (ex date: 27 Apr 2021), bringing total DPS for FY20 to 9.44 sen. We raise FY21- 22 core net profit forecasts by 3.6-5.1%, largely to account for higher margin assumptions at downstream segment. Maintain HOLD rating on TP of RM5.20 (valuation methodology on the downstream segment is based on P/B).

Beat our expectation, but below consensus. 4Q20 core net profit of RM309m (QoQ: +32.0%; YoY: +406.8%) took FY20’s sum to RM895m (vs. RM168m in FY19). The results beat our expectation, accounting for 107.5% of our estimate, due mainly to better-than-expected performance at downstream segment. Against consensus, the results came in below, at 92.6%.

Exceptional items in 4Q20. Our core net profit of RM375m was arrived after adjusting for (i) RM16m impairment on receivables and PPE, (ii) RM25m unrealised forex gain, (iii) RM14m write-off on PPE and inventories, (iv) RM30m fair value gain, (v) RM236m impairment on non-current assets held for sale, and (vi) RM10m disposal gain.

Dividend. Declared final DPS of 5.42 sen (ex date: 27 Apr 2021), bringing total DPS for FY20 to 9.44 sen (translating to a dividend yield of 1.9%).

QoQ. Core net profit grew 32.0% to RM375m in 4Q20, as lower FFB output (-4.1%) was more than mitigated by higher palm product prices and improved profitability and trading activities at downstream segment.

YoY. Core net profit surged to RM375m (from RM74m SPLY) in 4Q20, boosted mainly by higher palm product prices and FFB output at upstream plantation segment, stronger performance at downstream segment (as it benefitted from market price uptrend and premium from higher sales volume of RSPO products), and lower finance costs (arising from lower benchmark lending rates).

YTD. FY20 core net profit surged >5x to RM895m (from RM168m in FY19), as lower FFB output (-4.1%) was more than mitigated by sharply higher palm product prices, improved performance at downstream segment, and lower finance cost (as a result of lower benchmark lending rates and repayment of borrowings).

FFB output to recover in FY21. FFB output fell 4.1% to 9.3m tonnes in FY20, dragged mainly by labour shortage in Malaysia, floods in some parts of Malaysia during 4Q20, and change in cropping pattern in Indonesia. Despite having anticipated labour shortage issue in Malaysia to protract into FY21, management seems confident that overall FFB output will recover back to FY19’s level in FY21, in the absence of weather anomalies.

Forecast. We raise FY21-22 core net profit forecasts by 3.6-5.1% to RM1.07bn and RM1.08bn, respectively, largely to account for higher margin assumptions at downstream segment. Based on our estimates, every RM100/mt change in our average CPO price assumptions will result in 16-17% change to our core net profit forecasts.

Maintain HOLD, with unchanged TP of RM5.20. Despite the upward revision in our core net profit forecasts, we maintain our HOLD rating on the stock, with an unchanged sum-of-parts derived TP of RM5.20 (see Figure #2), as our valuation methodology on the downstream segment is based on P/B.

Source: Hong Leong Investment Bank Research - 19 Feb 2021