KEY INVESTMENT HIGHLIGHTS

• 4QFY19 normalised earnings rebounded strongly to RM143.0m from RM15.0m achieved in 3QFY19

• Full year FY19 normalised earnings of RM238.0m exceeded ours and consensus expectations

• Further suspension of its third party suppliers could put further downward pressure on the group’s FFB production

• Remain steadfast in improving its debt profile

• Maintain Neutral with a revised TP of RM4.93

Rebounds in earnings. Sime Darby Plantation Bhd’s (SDPL) 4QFY19 normalised earnings amounted to RM143.0m, a significant improvement from RM15.0m achieved for 3QFY19. This was mainly supported by higher revenue contribution of RM3,376.0m, an increase of +19.7%qoq.

Exceed our expectations. Cumulatively, FY19 normalised earnings amounted to RM238.0m. This is after excluding for exceptional items which mainly consist of the impairment charges on the Liberian operations of RM235m. All in, SDPL’s FY19 financial performance came in better than ours and consensus expectations.

Upstream. The upstream segment reported recurring FY19 PBIT of RM125.0m from continuing operation as compared to RM1,141.0m in the comparative period last year. This was mainly due to lower average prices of CPO (-5.5%yoy) and PK (-33.1%yoy) and lower FFB production (-6.3%yoy).

Downstream. The downstream segment remained resilient at RM276.0m for FY19. This was supported by improved results of Asia Pacific bulk and differentiated refineries which recorded higher sales volumes and margins. Nonetheless, the Europe, Middle East and Africa operations suffered from lower sales volume and margin.

Asset monetisation exercise. In FY19, the group has raised RM114m cash from the disposal of PT Mitra Austral Sejahtera (RM103m) and land sales (RM11m). Moving forward, SDPL is expecting to rake in cash of more than RM1.0b arising from land sales as well as divestment of noncore and non-strategic assets, non-profitable assets, low yielding assets and adjacent investments.

Impact to earnings. We are factoring healthier upstream production margin and higher contribution from the downstream segment. Subsequently, FY20 and FY21 have been revised upwards to RM882.1m and RM925.0m respectively.

Target price. After taking into consideration FY19 financial performance, we are revising our target price to RM4.93 (previously RM4.96). This is premised on pegging revised FY20 PBF of RM1.64 against target P/B ratio of 3.0x which is half standard deviation below the average ratio since its listing.

Source: MIDF Research - 2 Mar 2020