INVESTMENT HIGHLIGHTS

• 1HFY18 earnings within expectations

• 1HFY18 earnings improved 38% yoy

• But 2QFY18 earnings declined yoy

• Earnings estimate unchanged

• Maintain NEUTRAL with TP of RM5.60

1HFY18 earnings within expectations. Sime Darby Plantation Berhad (SIMEPLT) 1HFY18 Core Net Profit (CNP) of RM756m is deemed to be within expectations although it makes up 65% of ours and 59% of consensus estimate. We believe that the strong FFB growth of 12% yoy seen in the 1HFY18 should taper down in the 2HFY18. Note that the December FFB production has shown slight decline of 3% yoy to 847,403 tonnes. For our CNP calculation, we have excluded RM745m gain on disposals, RM21m writeoffs, forex loss of RM31m and impairments of RM1m.

1HFY18 earnings improved 38% yoy: Compared to same period last year, 1HFY18 CNP increased 38%yoy to RM756m due to strong FFB growth of 12% yoy to 5.46m tonnes. This has more than offset the impact from lower CPO price which slipped 2% to RM2672 per tonne.

But 2QFY18 earnings declined yoy: Compared to 2QFY17, 2QFY18 CNP was down by 58%yoy to RM464m as the impact from lower CPO price (-6% to RM2654 per tonne) has more than offset increase of 2% in FFB volume to 2.76m tonnes.

Earnings estimate unchanged. FY18 CNP is maintained at RM1.17b. FY19 CNP is also maintained at RM1.21b.

Maintain Neutral with TP of RM5.60. Our Target Price is based on Sum-Of-Parts based valuation. Despite the strong set of results, we believe the earnings growth should taper down in the 2HFY18 in line with slower FFB growth prospect.

Source: MIDF Research - 23 Feb 2018