SD Plantation reported firmer 9MFY18 revenue due to a higher contribution from its upstream operations. Its core net profit of RM1.04bn (+24.6% yoy) came in largely within our expectations. No changes are made to our FY18-20 core EPS forecasts as there were no major surprises to the results. We raise our target price slightly to RM5.58 from RM5.35, based on an unchanged PER of 25x on our core 2019E EPS (rolled forward from 2018E) and maintain our HOLD rating.

9MFY18 Core Net Profit Increased 24.6% Yoy to RM1.04bn

SD Plantation’s 9MFY18 revenue rose by 1.7% yoy to RM11.3bn due to an increase in contribution from the upstream plantation business (especially in the Malaysian operation), while the downstream plantation segment revenue was flat yoy. For 9MFY18, SD Plantation’s FFB production was higher by 6% yoy to 7.8m MT, while its CPO ASP was lower at RM2,604/MT vs. RM2,861/MT in 9MFY17. The PBT for 9MFY18 surged by 70.2% yoy to RM2,228m, mainly attributable to the gain on disposal of the Malaysian Vision Valley (MVV) land to SD Property for RM676m. Excluding one-off items, the 9MFY18 core net profit climbed by 24.6% yoy to RM1.04bn, which accounts for 73.3% and 79.4% of our and the consensus FY18 forecasts, respectively. This came in within our expectations but above consensus.

Weaker Sequentially, as Expected

SD Plantation’s 3QFY18 revenue declined by 10.4% qoq to RM3.66bn. The CPO production in 3QFY18 suffered badly from adverse weather conditions, especially at the Indonesian estates (3% of PBIT). The EBITDA margin also weakened by 5.7ppt qoq to 19.1%, mainly due to weaker CPO prices, while the 3QFY18 PBT and core net profit (excluding one-off items) declined by 44.7% and 40.3% qoq, respectively, to RM352m and RM275m.

Maintain HOLD Rating With 12-month TP of RM5.58

We make no changes to our FY18-20 core EPS estimates post the 9MFY18 results. We raise our target price to RM5.58, based on an unchanged PER of 25x on our core 2019E EPS (rolled forward from 2018E) and maintain our HOLD rating.

Key Risks

Key upside/downside risks include: 1) a stronger/weaker economic growth leading to a higher/lower consumption of vegetable oils; 2) a sustained rebound/plunge in the CPO price; 3) higher/lower-than-expected FFB and CPO production; and 4) changes in policies.

Source: Affin Hwang Research - 1 Jun 2018