• Maintain HOLD (TP: RM4.68). Sime Darby Plantations Bhd (SDPL) 1Q24’s core PATAMI of RM229mn, was broadly in line with our forecast, representing 19% of our full-year projection, due to the cyclical down cycle in palm oil production this quarter. Both revenue and core PBT increased by 7% and 36% YoY to RM4.3bn and RM364mn respectively, thanks to higher recurring profits in its operational segments, where the upstream segment benefited from an 8.5% YoY increase in FFB production, while the downstream segment was driven by higher demand for Asia Pacific bulk and differentiated refineries, as well as improved margins in Europe. Key takeaways from the briefing include: i) FFB production for FY24 is expected to remain in the high single digits, supported by Malaysian plantations but potentially impacted by production in Indonesia due to the aftereffects of drought from the outgoing El Nino and in Papua New Guinea due to flooding, ii) cost of production for 2024 is expected to range from RM2,500 to RM2,600/MT, iii) construction of a new refinery and the expansion of existing capacities are expected to boost downstream earnings contribution, and iv) maximizing the value of its land assets through expanding its solar business and developing the Kerian Integrated Green Industrial Park (KIGIP). We maintain a HOLD call with a new TP of RM4.68, based on a P/BV of 1.8x and a FY24/25F BV/share of RM2.60.

• Key highlights. In 1Q24, core PBT rose by 36% YoY, mainly due to increase in both upstream and downstream segments. Higher upstream profit was due to i) increase in FFB production (+8.5% YoY), ii) improved OER to 21.20% (from 21.02%), and iii) higher palm kernel ASP (+8% YoY), which mitigated the marginal decline in CPO ASP (-0.2% YoY). The downstream segment benefited from higher demand for Asia Pacific bulk and differentiated refineries, as well as improved margins in Europe. However, on QoQ basis, core PBT declined by 5%, dragged down by lower sales volume and margins in the downstream segment. Conversely, core PATAMI increased by 21%, mainly due to a lower tax rate of 26.9% (-11.3 ppts QoQ).

• Outlook. We reaffirm our view that SDPL will deliver a sustainable performance in FY24. This will be primarily driven by higher upstream earnings from Malaysian estates, supported by expected improved production, sustained ASP of CPO (RM3,600-RM4,000/MT), and lower costs. However, the positive outlook may be moderated by risks including: i) weaker than expected production due to weather conditions, especially in Indonesia, ii) increased competition, particularly from soybean oil, and iii) muted global demand.

Source: BIMB Securities Research - 4 Jun 2024