SD Plantation reported slightly lower FY18 revenue due to lower contribution from its downstream plantation operations. However, excluding one-off items, the group’s core net profit increased by 7.5% to RM1.28bn. Given that FY18 results were within our expectations, we don't make any changes to our 6M18-2020E core EPS forecasts. We maintain our HOLD rating with an unchanged TP of RM5.08.

FY18 Core Net Profit Increased 7.5% Yoy to RM1.28bn

SD Plantation’s FY18 revenue declined slightly by 3% yoy to RM14.4bn due to a decline in the downstream plantation segment, while the upstream plantation business segment improved slightly (attributable to higher contribution from the Malaysian upstream operation partially offset by lower contribution from Indonesia, PNG/SI and Liberation upstream operations). For FY18, SD Plantation’s FFB production was higher by 4.6% yoy to 10.2m MT, while CPO ASP was lower at RM2,546/MT vs. FY17 CPO ASP at RM2,848/MT. SD Plantation’s PBT for FY18 declined 41% yoy to RM2.38bn, mainly due to a lower gain on disposal of land in FY18 as compared to previous year. After excluding one-off items, FY18 core net profit climbed by 7.5% yoy to RM1.3bn, which accounts for 96% and 97% of our and street’s FY18 core EPS respectively, and within expectations. SD Plantation announced a DPS of 14 sen in 4QFY18 (8 sen final dividend and 6 sen special dividend), bringing total DPS to 17.5 sen for FY18.

Weaker Sequentially Due to Lower CPO Prices

Sequentially, SD Plantation’s 4QFY18 revenue declined by 15.7% qoq to RM3.08bn. CPO ASP was lower at RM2,379/MT in 4QFY18 vs. CPO ASP of RM2,452/MT in 3QFY18, although CPO production in 4QFY18 rebounded qoq by 4.2% to 2.4m MT after production in 3QFY18 suffered badly from adverse weather conditions, especially at the Indonesian and PNG/SI estates. 4QFY18 PBT declined by 57.7% to RM149m, mainly attributable to impairment charges recognised in the quarter totalling RM283m. SD Plantation’s core net profit (after excluding one-off items) declined by 12.4% qoq to RM241m.

Maintain HOLD Rating and TP of RM5.08

We make no major changes to our 6M18-2020E core EPS estimates for SD Plantation post the FY18 results. We expect future earnings to be underpinned by higher contribution from the downstream division as well as rising FFB and CPO production. We maintain our 12-month target price at RM5.08, based on an unchanged PER multiple of 25x applied on our 2019E core EPS. Given the limited upside potential, we maintain our HOLD rating on SD Plantation.

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/decline in the CPO price; 3) higher/lower-than-expected FFB and CPO production; and 4) changes in policies.

Source: Affin Hwang Research - 3 Sept 2018