FY22 core net profit of RM2.17bn (-12%) missed our expectation (accounting for 90.9% of our estimate), due to weaker-than-expected contribution from upstream plantation segment. Declared final DPS of 6.04 sen (going ex on 27 Apr 2023), bringing total DPS for FY22 to 16.04 sen (vs. 20.28sen in FY21). We lower our FY23 core net profit forecast by -3.4% to RM1.7bn, mainly to account for lower margin assumption at downstream segment. Maintain HOLD rating on SDPL with unchanged TP of RM4.49 based on unchanged 18x FY24 core EPS of 24.9 sen.

Missed our expectation; within consensus. 4QFY22 core net profit of RM471m (QoQ: +29%; YoY: -40%) took FY22 total sum to RM2.17bn (-12%). The results missed our expectation (accounting for only 90.9% of our estimate), due mainly to weaker-than-expected contribution from upstream plantation segment. Against the consensus, the results came in within, accounting for 97.0% of estimate.

EIs in FY22. Core net profit of RM2.17bn was arrived after adjusting for (i) RM91m fair value gains, (ii) RM368m disposal gains, (iii) RM81m impairment and write-offs, (iv) RM42m unrealised forex gain, (v) RM119m fair value loss on biological assets, and (vi) RM14m Liberia exit cost.

Dividend. Declared final DPS of 6.04 sen (going ex on 27 Apr 2023), bringing total DPS for FY22 to 16.04 sen (vs. 20.28sen in FY21).

QoQ. Core net profit increased by 29% to RM471m in 4Q22, boosted mainly by higher CPO extraction rate and recovery in oil inventory at upstream plantation segment, which more than mitigated weaker performance at downstream segment (arising from lower sales volume and margins from European refineries).

YoY. Core net profit fell -40% to RM471m in 4Q22, dragged by (i) lower realised palm product prices, lower FFB output and OER at upstream plantation segment, which resulted in recurring operating profit at the segment declining by 35% to RM809m, and (ii) weaker contribution from downstream segment (arising from lower sales volume in all sub-segments and lower sales margins recorded by European refineries).

YTD. Core net profit fell by 12% to RM2.17bn in FY22, dragged mainly by weaker contribution from upstream plantation segment (arising from a 10% decline in FFB output and higher fertiliser costs, but partly mitigated by higher realised palm product prices). This was however partly mitigated by sharply higher contribution from downstream segment (driven by higher margins by the Asia Pacific bulk and differentiated operations, which mitigated lower margins at European refineries and lower sales volumes across all regions).

FFB output growth guidance. FFB output declined by -10% to 8.2m tonnes in FY22, dragged mainly by acute labour shortfall in Malaysia, which has in turn resulted in FFB output in Malaysia falling by 24% to 3.5m tonnes. Moving into FY23, management guided FFB output growth of 10-15%, which will be driven by Malaysia operations (as management expects labour shortage to resolve by May/Jun 2023).

CPO production cost guidance. Management expects CPO production cost to decline to RM2,100-2,300/tonne in FY23 (from RM2,500/mt in FY22), on the back of an anticipated increase in FFB output and lower fertiliser costs (particularly, in 2H23).

Weak downstream performance to persist into 1Q23. The weak performance at downstream segment will likely persist into 1Q23, due to higher feedstock prices and weak demand.

Forecast. We lower our FY23 core net profit forecast by -3.4% to RM1.7bn, mainly to account for lower margin assumption at downstream segment.

Maintain HOLD with unchanged TP of RM4.49. We maintain our HOLD rating with unchanged TP of RM4.49 based on unchanged 18x FY24 core EPS of 24.9 sen.

Source: Hong Leong Investment Bank Research - 20 Feb 2023