SD Plantation reported lower 6M19 revenue on reduced contribution from its upstream and downstream plantation operations. The group’s core net profit declined 87.8% yoy to RM63m. This was below our expectation mainly due to lower CPO prices as well as higher operating costs that has impacted its upstream plantation division. We cut our 2019-21E core EPS estimates by 17-45%, mainly to take into account lower CPO price assumptions and higher production costs. Given the earnings downgrade, we lower our DCF-derived target price (TP) to RM4.80, and maintain HOLD rating on the stock.

6M19 Core Net Profit Declined by 87.8% Yoy to RM63m

SD Plantation’s 6M19 revenue declined by 12.8% yoy to RM5.9bn, due to a decline in contribution from both upstream and downstream segments. 6M19 PBT for SD Plantation dropped to RM101m, down by 79.8% yoy due to lower contribution from upstream plantation division (due to lower profit from the upstream Malaysian operation while losses were seen at the upstream plantations in Indonesia, PNG/SI and Liberia) but was partially mitigated by slightly higher contribution from its downstream segment. The weak performance from the upstream plantation division was due to lower average selling prices for CPO and PK, partially mitigated by improvement in FFB production. SD Plantation’s 6M19 CPO ASP was lower at RM2,016/MT (6M18: RM2,414/MT). Meanwhile, the downstream plantation’s profit improved yoy due to better margins in its Asia-Pacific operation because of lower feedstock costs.

Results for 6M19 Was Below Expectations

Excluding one-off items, 6M19 core net profit was at RM63m, down 87.8% yoy. The 6M19 results were below market-consensus and our expectations, and the variance to our forecast was mainly due to lowerthan-expected CPO prices and higher-than-expected operating costs.

Source: Affin Hwang Research - 3 Sept 2019