FY20 core net profit of RM240.9m (+71.9%) came in broadly within our expectation, accounting for 94.1% of our estimate (consensus: 99.2%). Recommended final DPS of 4 sen and declared special DPS of 11 sen (ex -date: 11 Mar 2021). We trim our FY21-22 core net profit forecasts by 7.9% and 4.6%, respectively, mainly to account for lower utilisation rate and margin at the downstream segment, as well as lower FFB output yield assumption. Maintain HOLD rating with a lower SOP-derived TP of RM10.14 (from RM10.80 earlier).

Broadly in line. 4Q20 core net profit of RM86.5m (QoQ: +27.4%; YoY: 28.1%) took FY20’s sum to RM240.9m (+71.9% YoY). The results came in broadly within our expectation, accounting for 94.1% of our estimate (consensus: 99.2%).

EIs in 4Q20. Core net profit of RM86.5m was arrived after adjusting for (i) RM0.8m PPE written off, (ii) RM1.2m writedown on land held for property development, (iii) RM0.1m impairment loss on receivables, and (iv) RM5.6m net forex differences.

Dividend. Recommended final DPS of 4 sen and declared special DPS of 11 sen (ex date: 11 Mar 2021), bringing total DPS for FY20 to 21 sen (translating to a total dividend yield of 2.3%).

QoQ. Core net profit increased by 27.4% to RM86.5m in 4Q20, as lower contribution from downstream segment (from weaker demand for biodiesel and stiff competition at refining sub-segment) was more than mitigated by (i) an 11.2% increase in FFB output (due mainly to seasonally higher FFB output from Indonesia operations), (ii) higher palm product prices, and (iii) turnaround at the biotechnology segment.

YoY. Core net profit surged 38.1% to RM86.5m in 4Q20, boosted by a 3.1% increase in FFB output (driven mainly by higher output in Indonesia) and higher palm product prices at the upstream plantation segment. However, these were partly offset by weaker downstream earnings (on the back of lower capacity utilisation along with margin compression), as well as weaker contribution from property development and premium outlets.

YTD. Core net profit surged 71.9% to RM254.4m in FY20, as lower FFB output (5.0%), and weaker contribution from property development segment, downstream segment and premium outlets were more than mitigated by higher palm product prices.

Outlook: Upstream plantation segment to drive earnings. Upstream plantation (supported by 5-8% FFB output growth in FY21 and high near-term palm product prices) and property development segments will be the key earnings growth driver in FY21. These will be partly negated by challenging operating environment at the downstream segment, as a result of high POGO spread and export duty structure differential between Malaysia and Indonesia.

Forecast. We trim our FY21-22 core net profit forecasts by 7.9% and 4.6%, respectively, mainly to account for lower utilisation rate and margin at the downstream segment, as well as lower FFB output yield assumption (in accordance to management’s FFB output growth guidance of 5-8% in FY21). Based on our sensitivity analysis, every RM100/mt change in our CPO price assumption will result in our FY21-22 core net profit changing by ~15%.

Maintain HOLD, with lower TP of RM10.14. Following the downward revision in our core net profit forecasts, we maintain our HOLD rating with a lower sum -of-parts TP of RM10.14 (from RM10.80 previously).

Source: Hong Leong Investment Bank Research - 25 Feb 2021