9MFY21 CNP of RM1.74b is deemed above our expectation (78%) and consensus’ (84%). We expect a modest sequential improvement in 4QFY21 as higher CPO price should make up for lower FFB production. Raise FY21E CNP by 10%, but cut FY22E CNP by 12% (on higher fertiliser cost and tax). Downgrade to MP with a lower TP of RM4.10 (from RM4.60) @ FY22E PER of 18x (-1.0SD). FY22 prospects are less exciting, while U.S. CBP’s WRO resolution remains uncertain.

Above expectations. Sime Darby Plantation Berhad (SIMEPLT) registered 9MFY21 Core Net Profit (CNP) of RM1,736m (+322% YoY) which is above both our (78%) and consensus’ (84%) estimates due to higher-than-expected average CPO price. 9MFY21 FFB output of 7.0m MT (flat YoY) is at 76% of our estimate. Absence of DPS is as expected.

Boosted by upstream. YoY, 9MFY21 CNP rose (+322%, from a low base) mainly led by an improvement in upstream recurring PBIT (+156%) due to higher average CPO price (+43%) while FFB remained flat. QoQ, 3QFY21 CNP rose (+17%) as higher average CPO price (+4%) overshadowed lower FFB output (-5%).

FFB production likely to decline in 4QFY21. Management is guiding flat-to-slight negative FY21 FFB growth (in line with our flat assumption). This implies sequential production decline of ~3% in 4QFY21. That said, we think earnings could show a modest sequential improvement on higher CPO price (MPOB- QTD4QFY21 CPO price: +17% QoQ). Meanwhile, management has locked in most of its fertiliser requirements for 2022 at 30-40% higher cost, which we incorporate in our earnings revision below.

Raise FY21E CNP by 10% on higher realised average CPO price of ~RM3,600/MT (vs. RM3,400/MT previously), but reduce FY22E CNP by 12% on prosperity tax and higher fertiliser cost hike of 30% (vs. 5%).

Downgrade to MARKET PERFORM with a lower TP of RM4.10 (from RM4.60) on FY22E PER of 18x, reflecting -1.0SD from mean. Despite beating earnings expectations, we think FY22 prospects are less exciting as we expect CPO price to trend lower, for which, we have factored in an average price of RM3,200/MT. At FY22E PER of 17.5x, we think the stock is fairly valued especially with lingering ESG concerns, and hence our downgrade. At this juncture, the timeline completion of an assessment by Impactt which is an ethical trade consultancy remains in 1QFY22. Thereafter, improvements based on recommendations may have to be taken, making the resolution of U.S. CBP’s WRO a lengthy one.

Source: Kenanga Research - 19 Nov 2021