• SD Plantation’s 1Q21 core net profit of RM499m (>100% yoy) came in above our expectations, mainly due to higher-than-expected contribution from its upstream plantation segment
• We raise our 2021/22E core EPS by 49.5%/12% mainly to take into account a higher CPO ASP assumption
• Despite raising our earnings forecasts and rolling forward our valuation horizon, our DCF-derived TP is lowered to RM4.88 as we apply a higher discount rate. We maintain our HOLD rating on SD Plantation

1Q21 Core Net Profit at RM499m – Above Our Expectations

SD Plantation’s 1Q21 revenue was higher by 20.7% yoy to RM3.7bn, while the EBITDA margin improved by 9.3ppt yoy to 28.4% in 1Q21 due to a better margin at the upstream segment given the higher average CPO and PK prices. For 1Q21, SD Plantation’s CPO and PK ASPs were higher by 22.3% and 46.8% yoy at RM3,185/MT and RM2,230/MT respectively, while FFB production increased by 4.2% yoy to 2.2m MT (strong production rebound in Indonesia after the impact of the 2019 El Nino). The 1Q21 headline PBT increased by 27.8% yoy to RM776m, attributable to better profit contribution from both its upstream and downstream divisions. After excluding the one-off items, 1Q21 core net profit for continuing operations stood at RM499m, up >100% yoy. 1Q21 core net profit was above our expectations; the variance to our forecast was due to better-than-expected profit contribution from its upstream division.

Raising Forecasts on Higher CPO ASP Assumptions

Given the strong 1Q21 results, we raise our 2021/22E core EPS by 49.5%/12.0%, mainly to take into account higher CPO ASP assumptions of RM3,300-2,650/MT (from RM2,650-2,500/MT previously). The likely strong CPO prices would be driven by lower than-expected crop production, tightness in supply of edible oils and high prices of other edible oils, although they could come under pressure from 2H21 onwards as production picks up, in our view.

Maintaining Our HOLD Rating With a New TP of RM4.88

Despite raising our earnings forecasts and rolling forward our valuation horizon (but using a higher WACC assumption as investors remain sceptical on the CPO ASP trend as well as investor concerns over ESG issues on the sector), our DCF-derived TP is lowered to RM4.88 from RM5.20 previously. We think that the share price could remain volatile due to continual uncertainties surrounding the US CBP’s Withhold Release Order on SD Plantation’s palm-oil and palm-oil products that has an adverse impact on the company’s reputation. Maintain Hold.

Source: Affin Hwang Research - 20 May 2021