• SD Plantation’s 2020 core net profit of RM876m (>100% yoy) came in above our expectations but below consensus. The variance to our forecast was mainly due to higher-than-expected contribution from its upstream plantation segment and lower finance costs
   
• We raise our 2021-22E core EPS by 32%/22.9%, mainly to take into account higher contribution from the upstream plantation division on better margins and lower finance costs. No changes were made to our CPO assumptions of RM2,650-2,500/MT for 2021-22E. We also introduce our 2023 forecasts
   
• Maintain HOLD Rating With a New DCF-derived 12-month TP of RM5.20

2020 Core Net Profit at RM876m – Above Our Expectations

SD Plantation’s 2020 revenue was higher by 8.4% yoy to RM13.1bn, due to higher contribution from its downstream segment. The EBITDA margin improved by 6.8ppt yoy to 21.5% in 2020 due to a better margin at the upstream segment given the higher average CPO and PK prices. For 2020, SD Plantation’s CPO and PK ASPs were higher by 22.7% and 30.9% yoy at RM2,532/MT and RM1,463/MT respectively, although FFB production declined by 3.1% yoy to 9.3m MT (production was lower throughout SD Plantation’s estates in Malaysia, Indonesia and Papua New Guinea/Solomon Islands, partly attributable to the lagged effect of adverse weather conditions back in 2019 as well as the labour shortage in Malaysia). The 2020 PBT, which included forex losses, fair value gains on commodities, gains on disposal of assets and impairments, surged >100% yoy to RM2bn. This was attributable to better profit contribution at both its upstream and downstream divisions. After excluding the one-off items, 2020 core net profit for continuing operations stood at RM876m, up >100% yoy. The 2020 core net profit was above our expectations but below consensus; the variance to our forecast was partly due to better-than-expected profit contribution from its upstream division (attributable to lower operating expenses) and lower-than-expected finance costs. The group benefited from lower finance costs in 2020 (-31% yoy) due to a decline in interest rates. SD Plantation declared a DPS of 5.42 sen, bringing its 2020 total DPS to 9.44 sen (2019: 1 sen).

Sequentially Stronger, Core Net Profit Up 65.1% to RM444m

SD Plantation’s 4Q20 revenue was higher by 14.4% qoq to RM3.6bn while PBT increased by 78.1% qoq to RM554m. For 4Q20, FFB production was down by 4.1% qoq to 2.3m MT, while the CPO selling price was higher at RM2,664/MT (3Q20 ASP: RM2,504/MT). The higher selling prices in 4Q20 was partly attributable to improved demand, tight stock levels, increase in prices of other edible oils and weather uncertainties. Excluding these one-off items, SD Plantation posted a higher core net profit (excluding discontinued operation) of RM444m in 4Q20, up 65.1% qoq.

Source: Affin Hwang Research - 19 Feb 2021