FY18 Core Net Profit (CNP*) of RM1.27b came within both consensus and our forecast at 97% and 100%, respectively. A final dividend of 8.0 sen was recommended as expected, along with a special dividend of 6.0 sen. No changes in 6M18-FY19E CNP of RM0.72-1.27b. Maintain MARKET PERFORM with an unchanged TP of RM5.60.

FY18 within expectations. Sime Darby Plantation Bhd (SIMEPLT)’s FY18 CNP* came within expectations at RM1.27b, at 97% of consensus’ RM1.31b forecast and spot on with our estimate. FFB production at 10.2m MT was also on the spot with our 10.2m MT projection. A final dividend of 8.0 sen was recommended, bringing FY18 dividend to 11.5 sen, largely in line with our 12.0 sen forecast. On top of that, the group has declared and proposed a special interim dividend of 3.0 sen and a special final dividend of 3.0 sen, bringing total dividends to 17.5 sen. The special dividends were a result of a series of gains on PP&E disposals in 4Q17 and FY18. This was a pleasant surprise because we did not anticipate this amount of disposals or any special dividends arising from it.

Higher FFB output offset by lower CPO price. YoY, FY18 CNP was flat as higher FFB production (+5%) was offset by a 11% decline in CPO price to RM2,546/MT. In the Upstream segment, core PBIT (excluding non-recurring disposals) weakened 16% mainly due to the softer CPO price as noted. During SIMEPLT’s 4Q18 results briefing, management noted that the FFB production growth was led by Malaysia (+10% to 5.82m MT) as young mature palms entered their peak production. However, this was partially offset by weaker production in: (i) Indonesia (-2% to 2.61m MT in) due to accelerated replanting; and (ii) PNG (-3% to 1.73m MT) due to severe wet weathers which led to flooding and infrastructure damage at the estates. On the other hand, Downstream core PBIT improved 15% to RM267m on higher sales volume (+5%). In addition, the revenue composition of differentiated products was higher (48% in FY18 vs. 42% in FY17) as opposed to sales of bulk items during the year, which resulted in higher contribution margin. QoQ, 4Q18 CNP surged 68% on production recovery (+4%) in Upstream, which resulted in core PBIT margin expansion by 13.5ppt to 25.7%. Meanwhile, Downstream’s core PBIT also improved 5% due to better refining margins given cheaper feedstock.

Streamlining core businesses. Management expects FFB production to improve, driven by better Malaysian production as Indonesia and PNG are both likely to see weakness due to weather disruptions in 2H18. We gather that management is continuing its review of non-core and non-performing assets, which is targeted for completion by year- end, which may include partial disposals of estates and refineries. Management also did not rule out acquisition of new plantation area in its existing regions, including in PNG, which we view as long-term positive as it indicates a continued focus on its core business. No changes in 6M18-FY19E CNP of RM0.72-1.48b as earnings came in within expectations. We have not factored in any potential disposal of non-core assets.

Maintain MARKET PERFORM with unchanged TP of RM5.60 based on unchanged Fwd. PER of 26.0x applied to average CY18-19E EPS of 21.5 sen. Our Fwd. PER is unchanged at 26.0x, implying a 5% premium to integrated peers’ valuation thanks to SIMEPLT’s market leadership position. In addition, we believe more special dividends are likely to follow as a result of the group’s continued divestments of non- core assets. However, we maintain MARKET PERFORM on SIMEPLT in view of its slightly below-average near-term FFB growth (CY18-19E of 5% vs. sector average of 8%) and lack of foreseeable catalysts.

Source: Kenanga Research - 03 Sep 2018