INVESTMENT HIGHLIGHTS

• FY18 core earnings beat ours but met consensus’

• 4Q headline net profit of RM30m (down 99%yoy) is caused by RM157m write-off and RM131m impairments

• FY18 CNP improved 4%yoy to RM1.29b

• FY19 CNP estimate increased by 5% to RM1.03b

• Maintain NEUTRAL with higher TP of RM5.25

FY18 core net profit above our expectation but met consensus. Sime Darby Plantation Berhad Group (SIMEPLT) FY18 Core Net Profit (CNP) of RM1.29b is above our expectation as it makes up 119% of our earnings estimate. This is caused by lower than expected operating expenses which has declined 13%yoy in 4QFY18 to RM2.97b. However, it is within consensus estimate at 101% of full year estimate. For our FY18 CNP calculation, we have excluded RM900m gain on disposals, RM226m write-offs, forex loss of RM39m and impairments of RM194m. As expected, total dividend of 14.0 sen was announced (final dividend 8.0 sen, cash interim dividend 3.0 sen and final dividend 3.0 sen).

4Q headline net profit of RM30m (down 99%yoy) is caused by RM157m write-off and RM131m impairments. Excluding these one off items, SIMEPLT core net profit in 4QFY18 is only lower by 32%yoy to RM285m. The RM157m write-off is due to impairment of Verdezyne Inc’s (a US-based company operating in industrial biotechnology field). We gather that SIMEPLT has ceased further investment in Verdezyne. For the RM131m impairment, it is related to impairment in Liberia assets.

FY18 CNP improved 4%yoy to RM1.29b: The healthy earnings growth is supported by 5% growth in FFB volume, better downstream performance and lower loss from Liberia operations. These have more than offset the impact from lower CPO price which slipped 11%yoy to RM2546 per tonne.

FY19 CNP estimate increased by 5% to RM1.03b. We have assumed lower operating expenses for FY19. We also introduce our FY20 CNP of RM1.05b.

Maintain NEUTRAL with higher TP of RM5.25: The increase in TP is in line with higher earnings estimate for FY19. Our Target Price is based on Sum-of-Parts based valuation. Maintain NEUTRAL on the stock as we believe that the strong fundamental of SIMEPLT has been priced in into its current Forward PE valuation of 35x for FY19.

More details were shared on its Papua New Guinea plantation land expansion. SIMEPLT explained that the Enterprise Value (EV) per planted ha for the 4,018 ha of planted landbank is USD9084 (or RM37,234). The Company also shared that the age profile is 18 months for the planted area. In our view, the valuation is on the high side due to its young age profile. Note that MFCL owns in total 6,110 ha of agriculture land (4,018 ha planted) in Markham Valley, Papua New Guinea. In addition to the land, MFCL owns two copra mills (valued with EV of USD27.1m) with total copra throughput capacity of 55,000 tonnes per annum. The valuation for the copra mills is at EV/EBITDA of 3.6x.

Source: MIDF Research - 3 Sept 2018