FY21 core net profit of RM2.46bn (2.7x) matched our expectation, accounting for 98.7% of our estimate. Against the consensus, the results came in above, exceeding consensus estimate by 11%. Declared final DPS of 12.38 sen (going ex on 27 Apr 2022), bringing total DPS for FY21 to 20.28 sen. We raise our FY22-23 core net profit forecasts by 27.6% and 32.0%, mainly to account for higher CPO price (RM4,300/mt for FY22 and RM3,300/mt for FY23) and CPO production cost assumptions, and higher EBIT margin assumption at downstream segment. Post earnings revision, we maintain our BUY rating on SDPL with a higher our sum of-parts TP of RM5.95 (from RM4.48 perviously). Maintain BUY rating on SDPL. SDPL remains one of our top picks for the sector, due to its high operating leverage to CPO price. Besides, its proactive measures to tackle US CBP’s ban issues will likely pave the way alleviate ESG concerns.

In line with our expectation; above consensus. 4Q21 core net profit of RM786m (QoQ: +14%; YoY: 2.1x) took FY21 sum to RM2.46bn (2.7x). The results came in within our expectation, accounting for 98.7% of our estimate. Against the consensus, the results came in above, exceeding consensus estimate by 11%.

EIs in FY21. Core net profit of RM2.46bn in FY21 was arrived after adjusting for (i) RM47m fair value gains, (ii) RM295m disposal gains, (iii) RM310m impairment, (iv) RM49m unrealised forex losses, (iv) RM57m fair value gain on biological assets, (v) RM23m write-offs, (vi) RM102m gain from retirement benefit plan in Indonesia (as a result of amendments introduced by the Omnibus Law in Indonesia), (vii) RM188m witholding tax (on dividends remitted from foreign subsidiaries), (viii) RM78m deferred tax liabilities (on unremitted earnings of subsidiaries classified as assets held for sale), and (ix) RM55m impairment on discontinued operations.

Dividend. Declared final DPS of 12.38 sen (going ex on 27 Apr 2022), bringing total DPS for FY21 to 20.28 sen (translating to dividend payout ratio of 62%).

QoQ. Core net profit increased by 14% to RM786m in 4Q21, helped by earnings recovery from downstream segment and marginally improved contribution from upstream segment. Realised average CPO and PK prices rose by 11-48% to RM4,179/mt and RM3,363/mt. Core operating profit at downstream segment surged 41x to RM287m in 4Q21, boosted by improvement in sales margins in Asia Pacific and higher sales volumes at its European refineries.

YoY. Core net profit more than doubled to RM786m in 4Q21 (from RM378m SPLY), boosted mainly by significantly higher realised palm product prices (but partly offset by a 7.5% decline in FFB output) and strong earnings contribution from downstream segment. Realised CPO and PK prices rose by 57% and 101% to RM4,179/mt and RM3,363/mt, respectively.

YTD. Core net profit surged 2.7x to RM2.46bn in FY21, boosted mainly by significantly higher realised palm product prices and higher earnings contribution from downstream segment. In FY21, realised CPO and PK prices increased by 47-74% to RM3,711/mt and RM2,551/mt, and this has resulted to core operating profit at the upstream segment more than doubling to RM3.8bn from RM1.6bn in FY20). Recurring operating profit at downstream segment surged by 42% to RM547m, boosted mainly by improvements in Asia Pacific bulk operations amidst favourable price movements and higher exports.

FFB output guidance. FFB output fell by 1.6% to 9.1m tonnes in FY21, dragged mainly by weaker FFB output in Malaysia (arising from labour shortage). Management guided a flattish to single-digit output growth in FY22, depending on how soon foreign labour issue is addressed in its Malaysia operations.

CPO production cost guidance. Management shared that it has locked in most of its fertiliser requirement for FY22 (except for “Muriate of Potash”, which was only locked in for 1H22, which the remainder targeted to be tendered out soon), at much higher prices, and this will lift SDPL’s CPO production cost by 10-15% in FY22.

Strong downstream performance to sustain into FY22. Management expect the good performance at downstream segment (which performed well in 4Q21) to sustain into FY22, as it expects market volatility and supply shortfall to persist (and these usually helps the division in generating better earnings).

No major impact from Indonesia’s new palm oil export ruling. Management does not see a major impact on the new Indonesian regulation (which requires domestic palm oil producers to sell 20% of their output to domestic refiners at fixed prices).

Forecast. We raise our FY22-23 core net profit forecasts by 27.6% and 32.0%, mainly to account for higher CPO price (RM4,300/mt for FY22 and RM3,300/mt for FY23, following our recent upward revision in CPO price assumptions for the sector) and CPO production cost assumptions at upstream segment, and higher EBIT margin assumption at downstream segment.

Maintain BUY with higher TP of RM5.95. Post earnings revision, we maintain our BUY rating on SDPL with a higher our sum-of-parts TP of RM5.95 (from RM4.48 perviously). Maintain BUY rating on SDPL. SDPL remains one of our top picks for the sector, due to its high operating leverage to CPO price. Besides, its proactive measures to tackle US CBP’s ban issues will likely pave the way alleviate ESG concerns.

Source: Hong Leong Investment Bank Research - 21 Feb 2022