• Maintain HOLD (TP: RM4.68). Sime Darby Plantations Bhd (SDPL) FY23 core net profit of RM895mn (-57%) came in below expectations, accounting for only 62%-65% of consensus and our estimates. Lower-than-expected production of palm product and higher-than-expected operating expenses were the key variances against our forecast. Key takeaways from the results briefing include 1) FFB output will continue to grow in FY24 with higher single-digit YoY growth, primarily from Malaysian estates due to improved labour situation and rehabilitation efforts in Malaysian upstream operations, 2) lower fertiliser cost and CPO production cost of circa RM2,500/MT expected for FY24, 3) management is hopeful to maintain its downstream margin at an average of circa 4%-5% in FY24, 4) dedicating 400ha of peatland operations in Sarawak for reforestation efforts, and 5) declared final DPS of 6.05sen, bring total DPS for FY23 of 15.00sen (FY22: 16.04sen). We lower our FY24 net profit forecasts by 6% mainly to account for lower production of palm products and higher operating expenses assumptions. Maintain a HOLD call with new TP of RM4.68 vs. RM4.80 previously; based on P/BV of 1.8x and to FY24/25F BV/share of RM2.60.

• Key highlights. In 4Q23, core PBT of RM381mn decline by -49% QoQ and - 40% YoY, due to 1) decline in CPO realised price, an increase in costs and lower downstream profit against 3Q23, and 2) the lower ASP realised for both CPO and PK and an adverse change in stock value partially offset the benefits of increased FFB, CPO, and PK production, as well as lower costs and downstream profits registered during the quarter compared to 4Q22.

• Outlook. We anticipate a sustainable performance for this year. This is mainly driven by higher upstream earnings, especially from Malaysian estates. This performance is grounded in the expected improvement in productions, sustain ASP of CPO (expected circa RM3,600-RM4,000/MT), and lower costs. However, this positive outlook will be moderated by weaker downstream earnings due to lower margins and demand. Note that SDPL is guiding for a slight reduction in production in Indonesia. attributed to dry weather conditions, especially in Kalimantan, which saw a period of up to 6 months of low rainfall, impacting bunch ripening.

Source: BIMB Securities Research - 23 Feb 2024