• NEUTRAL, new MYR3.90 TP from MYR4.15, 8% downside with c.3% FY24F yield. Sime Darby Plantation’s (soon to be renamed SDGuthrie) 1Q24 earnings fell below estimates. We expect it to book stronger numbers in FY24, from improved CPO prices and lower costs. Nevertheless, the stock remains fairly valued – trading at 22x 2024F P/E, at the mid-end of its peer range of 20-25x.

• 1Q24 net profit accounts for only 15% of our and Street FY24F earnings – on lower-than-expected Papua New Guinea (PNG) profits, owing to higher- than-expected unit costs as well as losses recorded by its US downstream JV amounting to MYR14m (vs a profit of MYR15m in 4Q23).

• 1Q24 FFB rose 8.7% YoY, slightly higher than SDPL’s FY24 guidance of a mid- single digit and our forecast of +6.6%. SDPL is maintaining its guidance, and expects growth to moderate from a low base in 1H23. In YTD-April, FFB growth rose to 13% YoY. We keep our FY24-26F FFB growth at 2-7%.

• SDPL has sold about 80% of its 1H24 Malaysian output at MYR4,100/tonne and 20% of 2H24’s output at MYR3,800/tonne.

• FY24 cost expected to moderate slightly. 1Q24 blended unit costs dropped by 3-4% YoY to MYR2,600/tonne, on the back of a slightly slow fertiliser application (60% of budget for Malaysia and 75% for Indonesia and PNG) and lower fertiliser prices (-10-20% YoY). For FY24, SDPL is now guiding for slightly higher unit costs of MYR2,500-2,600/tonne (from MYR2,500) as it continues to do rehabilitation work on its estates. We raise our cost assumptions by 5-10% for PNG and Indonesia for FY24-25.

• Downstream margin shrank to 3.4% in 1Q24 (from 3.9% in 4Q23, albeit higher than 2% in 1Q23), due to lower margins in Asia. SDPL expects this to improve, however, given continuous improvements seen in the EU, with margins expected to stay at 4-5% for 2024. It saw a turnaround to profitability at its downstream JV in April (from loss of –MYR14m in 1Q24). We make no changes to our FY24-26F downstream margin of 3.5-4%.

• We are positive on the SDPL’s renewable energy (RE) plans – which involves converting less productive land to solar farms. Currently it is already leasing out 24 sites housing 583MW of solar power, and developing a 15MW solar farm in Kedah (to be completed in end-2025). It is also bidding for three new sites under LSS 5 – with a goal of having 1000MW in RE assets in the next 3- 5 years. This, together with its plan to develop its 1,000-acre Kerian Industrial park with solar farms to support the E&E providers within the park, would diversify earnings sources away from plantations in the medium term.

• Maintain NEUTRAL with a lower TP of MYR3.90 post a 7-9% reduction in FY24F-26F earnings. This, in turn, was after we raised assumptions on cost and reduced that on JV contributions. Our TP includes a 0% ESG discount

Source: RHB Research - 4 Jun 2024