SD Plantation reported lower 1Q19 revenue due to lower contribution from its upstream and downstream plantation operations. The group’s core net profit plunged 83.3% yoy to RM46m. This was below our expectation mainly due to lower CPO prices as well as higher operating costs. As such, we cut our 2019-21 core EPS estimates by 21-52%, to take into account lower CPO price assumptions. We have changed our valuation method to DCF, with a revised TP of RM4.85, and maintain our HOLD rating. We believe SD Plantation’s current valuation is fair, taking into account its size, status and trading liquidity.

1Q19 Core Net Profit Declined by 83.3% Yoy to RM46m

SD Plantation’s 1Q19 revenue declined by 17.8% yoy to RM3bn. This was mainly due to declines in both the upstream plantation (from the Malaysia and PNG/SI upstream operations) and downstream plantation segments, which fell by 44.1% and 2.6% yoy, respectively, to RM722m and RM2.3bn. SD Plantation’s PBT for 1Q19 plunged by 64.5% yoy to RM125m, mainly due to lower contribution from the upstream plantation segment given the weak CPO prices, while FFB production increased by 7.9% yoy to 2.52m MT. SD Plantation’s 1Q19 CPO ASP was lower yoy at RM2,012/MT (3QFY06/18: RM2,452/MT). Meanwhile, the downstream plantation segment’s profit improved yoy driven by higher sales volume and better refinery margins. After excluding one-off items, 1Q19 core net profit stood at RM46m, down 83.3% yoy. This was below our and consensus expectations, and the variance against our forecast was mainly due to lower-than-expected CPO prices and higher operating costs.

Weaker Sequentially

SD Plantation’s 1Q19 revenue and PBT decreased by 14.2% and 49% qoq, respectively, to RM3bn and RM125m. Earnings were lower from both the upstream and downstream plantation divisions. The CPO ASP was higher by 7.6% qoq to RM2,012/MT, but FFB production declined by 10.1% qoq. Excluding one-off items, core net profit declined by 48.3% qoq to RM46m.

Source: Affin Hwang Research - 3 Jun 2019