INVESTMENT HIGHLIGHTS

• 2QFY19 normalised earnings came in below RM10m leading to 1HFY19 normalised earnings of RM52.0m (-64.1%yoy)

• This came in severely below ours and consensus expectations

• Impact of sharp decline in CPO and PK price was partially mitigated by a net tax income

• Asset monetisation exercise is on-going with 10 of 16 SPA signed

• Downgrade to SELL with an adjusted target price of RM4.08

Barely breakeven. Sime Darby Plantation Bhd’s (SDPL) 2QFY19 normalised earnings came in at RM8m as compared to normalised loss of - RM49m for QE June 2018. Note that the bulk of the exceptional items mainly pertained to gain on disposals of asset amounting to RM48m. The contraction in earnings was mainly attributable to the sharp decline in CPO and PK prices (refer to table 1) and sales volume. However, the decline was partially mitigated by a net tax income, mainly arising from recognition of deferred tax asset on losses suffered by subsidiary company and lower finance cost due to the higher capitalisation of borrowing costs.

Severely below expectations. Cumulative 1HFY19 normalised earnings came in at RM52.0m, a decline of -64.1%yoy. All in, SDPL’s 1HFY19 financial performance came in severely below ours and consensus expectations, accounting for merely 8.6% and 9.7% of full year FY19 earnings estimates respectively.

Upstream. The upstream segment recorded 1HFY19 PBIT of RM19m, a decrease of -97.1%yoy. This was mainly led by lower CPO and PK prices. However, the weaker palm oil prices was partially negated by: i) +4%yoy growth in FFB production to 4,952k mt (refer to table 2) and; ii) higher OER of 21.34% mainly emanating from the Malaysia and Liberia (refer to table 3).

Source: MIDF Research - 3 Sept 2019