9M20: Results Above Expectations on Higher CPO Prices

• SD Plantation’s 9M20 core net profit of RM467 (>100% yoy) came in above our expectations. The variance was mainly due to higher-than-expected contribution from the upstream plantation segment
•  We raise our 2020E/21E core EPS by 32.3%/24.6%, mainly to take into account higher contribution from the upstream plantation division with a higher CPO assumption of RM2,620/MT from RM2,450-2,500/MT previously. For 2022E, we upgrade our core EPS by 6.8% mainly to account for higher contribution from the downstream segment
•  Maintain HOLD rating on SD Plantation but with a new DCF-derived TP of RM5.06

9M20 Core Net Profit at RM467m – Above Expectations

SD Plantation’s 9M20 revenue was higher by 8.7% yoy to RM9.4bn, mainly due to higher contribution from the downstream segment (+12.3% yoy). The EBITDA margin improved by 6.6ppt yoy to 20.5% in 9M20 due to a better margin at the upstream segment given the higher average CPO and PK prices. For 9M20, SD Plantation’s CPO and PK ASPs were higher by 23.8% and 27.7% yoy at RM2,485/MT (9M19: RM2,006/MT) and RM1,386/MT (9M19: RM1,085/MT) respectively, although FFB production declined by 5.9% yoy to 6.98m MT (production was lower throughout SD Plantation’s estates in Malaysia, Indonesia and PNG/SI, partly attributable to the lagged effect of adverse weather conditions back in 2019). The 9M20 PBT, which includes forex loss, fair value gains on commodities, gains on disposal of assets and impairments, surged >100% yoy to RM1.4bn. After excluding the one-off items, 9M20 core net profit for continuing operations was at RM467m, up >100% yoy. The group also benefited from lower finance costs this year due to a decline in interest rates. The 9M20 core net profit was above our expectations, accounting for 87.6% of our previous full-year forecast. The variance to our forecast was partly due to higher-than-expected profit contribution from its upstream division.

Sequentially Stronger, Core Net Profit Up 99.3% to RM277m

SD Plantation’s 3Q20 revenue was marginally lower by 1.1% qoq to RM3.2bn while PBT declined by 40.1% qoq to RM311m (due to impairment of assets in 3Q20 as compared to a gain from sale of assets in 2Q20). For 3Q20, FFB production was down by 3.1% qoq to 2.39m MT, while the CPO selling price registered higher at RM2,504/MT (2Q20 ASP: RM2,361/MT). Excluding these one-off items, SD Plantation posted a higher core net profit (excluding discontinued operation) of RM277m in 3Q20, up 99.3% qoq

Source: Affin Hwang Research - 24 Nov 2020