SD Plantation reported lower 6MFY12/18 revenue due to lower contribution from its upstream and downstream plantation operations. The group’s core net profit plunged 73.8% yoy to RM202m, mainly due to lower CPO prices as well as higher operating costs, and is below our expectation. As such, we cut our 2019-20 core EPS estimates by 4% and our target price to RM4.78 (from RM4.96) based on an unchanged PER of 35x applied to our 2019E core EPS. We maintain our HOLD rating on the stock.

6MFY12/18 Core Net Profit Declined by 73.8% Yoy to RM202m

SD Plantation’s 6MFY12/18 revenue declined by 14.2% yoy to RM6.54bn. This was mainly due to declines in both the upstream and downstream plantation segments, which fell by 15.9% and 13.2% yoy, respectively, to RM1.56m and RM4.95bn. PBT for 6MFY12/18 declined 75.6% yoy to RM457m, partly due to an inclusion of gain on disposal of assets of about RM676m in the prior year as well as lower CPO prices, while FFB production increased by 2% yoy to 5.6m MT. SD Plantation’s 6MFY12/18 CPO ASP was lower at RM1,974/MT (6MFY06/18: RM2,672/MT). Excluding one-off items, 6MFY12/18 core net profit plunged by 73.8% yoy to RM202m, mainly due to weaker-than-expected contribution from the upstream division given the lower CPO prices and higher operating costs. This accounted for 68.3% of our 6MFY12/18 core earnings forecast and is below our expectations. The group declared a DPS of 1.7 sen (6MFY12/18 DPS: 3.5 sen).

Core Earnings Affected by Lower Contribution From Upstream Division

2QFY12/18 revenue and PBT increased by 15.3% and 15.6% qoq, respectively, to RM3.5bn and RM245m. The improvement in profit was due to higher contribution from the downstream operation (better margins and higher sales volume) coupled with a gain on disposal of assets and forex, but partially offset by the decline in profit from the upstream plantation due to lower CPO prices. The 2QFY12/18 CPO ASP was lower at RM1,870/MT (1QFY12/18: RM2,117/MT), while FFB production increased by 2% qoq to 2.81m MT. However, after excluding one-off items, core net profit declined by 21.2% qoq to RM89m.

Source: Affin Hwang Research - 1 Mar 2019