Review

• Sime Darby Plantation Berhad’s (SIMEPLT) 3QFY23 earnings came in above our but within consensus estimates. Excluding all exceptional items, the core net increased 18.7% YoY to RM349mn despite a 11.5% drop in revenue. Better earnings from the upstream division have helped to offset the weaker contribution from the downstream division.

• Cumulatively, 9MFY23 earnings plunged by 57.4% YoY to RM687.0mn while revenue also decreased by 14.4% YoY to RM13.1bn.

• Upstream: Despite lower palm oil prices, 9MFY23 reported PBIT increased by 2.4% YoY to RM2.0bn. Excluding all the disposal gains and exceptional items, recurring PBIT plunged 44.2% YoY to RM955mn. The weak performance was mainly dragged by lower palm oil prices, lower OER and higher operating costs.

• 9MFY23 CPO prices dropped 18.1% YoY to RM3,806/tonne, while PK prices also plunged 42.4% to RM1,755/tonne. The group experienced higher FFB production growth in Malaysia (+9.4% YoY) to 2.9mn tonnes, mainly attributable to increased workforce. Meanwhile, the Indonesia and Papua New Guinea / Solomon Islands registered weaker FFB production of 2.0mn tonnes (-2.1% YoY) and 1.4mn tonnes (-1.8% YoY). Overall, FFB production for the group has increased by 2.9% YoY.

• Downstream: 9MFY23 PBIT declined by 46.0% to RM417.0mn, mainly dragged by weaker profits from the Asia Pacific bulk and differentiated refineries as a result of lower sales margins and volume as well as lower contribution from JVs.

• The group declared a special interim dividend of 5.7 sen/share. This brings the total YTD dividend to 8.95 sen/share (vs. 9MFY22: 10 sen/share). Highlights from the Analyst Briefing:

• FFB production guidance has revised down to single digit growth compared to the previous 10% growth for FY23. According to management, the growth will be mainly driven by Malaysia operations due to ease of foreign worker shortage, particularly harvesters.

• FFB production is expected to increase further in FY24. However, management does not disclose any growth figures.

• The group was still short of around 500-550 harvesters in East Malaysia, while for Peninsular Malaysia, the foreign worker shortage has been resolved.

• Unit production costs have decreased by 6%, mainly due to increase in FFB production.

• According to management, El Niño has not yet caused any impact in Malaysia operating, but Indonesia has experienced a slight reduction in FFB production due to dry weather, especially in the Kalimantan region. While for PNG, FFB production has been affected by higher rainfall, which disrupted harvesting operations.

Impact

• We tweak our FY23 - FY25 earnings forecast higher by 0.6% - 32.0%, respectively, after factoring in better-than-expected 3QFY23 results, higher FFB production forecast and better margins.

Valuation

• Maintain SIMEPLT as HOLD with a higher TP of RM4.67, based on CY24 PER of 20x.

• Key risks are, 1) a down cycle in CPO price, 2) escalation in production cost, 3) global economic slowdown, 4) lower-than-expected FFB production, 5) increasing supply of soybean oil in the market.

Source: TA Research - 27 Nov 2023