We maintain HOLD on Sime Darby Plantation (SDP) with an unchanged fair value ofRM4.55/share, based on FY25F PE of 18x, which is the 5-year average for large-cap planters. We ascribe a 3-star ESG rating to SDP.
SDL has declared a final gross DPS of 6.1 sen, which brings total gross DPS to 15 sen for FY23. We forecast a gross DPS of 16 sen for FY24F, which translates into a yield of 3.6%.
SDP’s FY23 core net profit of RM733mil (ex-disposal gains of RM1.1bil) was 12% below our forecast and 38% short of consensus. SDP’s results were below our expectation due to higher-than-expected manuring and labour costs in 4QFY23.
SDP’s core net profit plunged by 66.6% to RM733mil in FY23, dragged by lower palm product prices and weaker downstream earnings. We have reduced SDP’s FY24F net profit by 22.6% to account for softer plantation and downstream EBIT margins.
Upstream EBIT in Indonesia tumbled by 43.5% to RM612mil in FY23 while earnings in Papua New Guinea (PNG) sank by 76.2%. On a positive note, the Malaysia upstream division recorded a 32.9% increase in EBIT in FY23 on the back of a 18% rebound in FFB production. FFB yields in Malaysia recovered in FY23 on the back of a higher number of estate workers.
Average realised CPO price fell by 15.4% to RM3,772/tonne in FY23 from RM4,456/tonne in FY22. However, group FFB production rose by 6.1% in FY23 as strong output in Malaysia compensated for declines of 3% in Indonesia and 2% in PNG.
Downstream EBIT (trading, bulk and differentiated products) contracted by 31.4% to RM562mil in FY23 as refining margins in Asia Pacific shrank. Downstream EBIT margin slipped to 3.4% in FY23 from 4.3% in FY22.
Comparing 4QFY23 against 3QFY23, SDP’s core net profit decreased by 56.7% to RM145mil as downstream earnings retreated by 39.2%. SDP’s downstream division was affected by lower sales volume and processing margins in Asia Pacific in 4QFY23.
Also, SDP’s FFB production edged down by 2.4% QoQ in 4QFY23 due to seasonal factors. Average CPO price was RM3,688/tonne in 4QFY23 vs. RM3,777/tonne in 3QFY23.
SDP is currently trading at a pricey FY24F PE of 23x, which is higher than its 2-year average of 17x.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....