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.
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