By Ranjit Singh
THE world’s largest plantation company by acreage, Sime Darby Plantation Bhd, registered a net profit of RM32 mil on the back of a turnover of RM2.82 bil for its third quarter ended Sept 30, 2019.
There is no comparative performance for the quarter and the nine months ended Sept 30, 2019, due to the change in the financial year-end from June 30 to Dec 31.
MIDF Research, in a results note on Dec 2, maintained its sell recommendation on the stock. The research house said the company had undertaken some forward sales of its produce so it was not able to benefit from higher CPO prices in late September. Sime Darby Plantation’s operations outside Malaysia had also witnessed lower production.
The research house added that while its downstream operations were expected to deliver “decent” results, it would not be sufficient to offset the volatile upstream operations.
The company’s dividend yield which stood at 0.8% was also not attractive when compared with other plantation players. MIDF has a target price of RM4.08 on the counter, which closed at RM5.12 on Dec 3.
KN Kenanga, in a results note on Dec 2, has a “market perform” call on Sime Darby Plantation with a target price of RM5.00. It said the company may not have fully benefited from the upswing in CPO prices in late September as it had committed to some forward sales at RM2,300-2,400 per tonne. So the impact from the hike in CPO prices could be quite muted for the company in 4Q.
Hong Leong Investment Bank, in a results review note also on Dec 2, has a hold call on Sime Darby Plantation on the premise of its rich valuations. It sees limited upside as the stock is currently trading at FY20-21 PER of 39.4x and 38.3x. The research house has a RM5.07 target price for the stock.
Sime Darby Plantation’s upstream segment recorded an operating profit of RM76 mil, down 65% from the corresponding quarter in 2018 due to lower yield and crude palm oil (CPO) realised prices.
“The weaker performance is attributable to the 11% decline in fresh fruit bunch (FFB) production, as well as the lower average CPO and palm kernel (PK) realised prices by 6% and 37% respectively,” the planter said in a Bursa Malaysia statement.
The group’s upstream segment for Malaysia alone posted a 30% decline in profit before interest and tax (PBIT) to RM88 mil, impacted by the lower average prices for both CPO and PK.
The average CPO realised price for the quarter of RM2,028 per tonne was 9% lower, while the average PK realised price of RM1,144 per tonne was 35% lower than in the previous corresponding quarter.
Meanwhile, its downstream operation witnessed PBIT rising 42% to RM68 mil, mainly due to the higher profit from the differentiated businesses and trading operations.
The trading operations registered better contribution attributable to higher margins resulting from the zero export duty for both Malaysia and Indonesia for the quarter under review.
For its underperforming operations in Liberia, the group said the venture reported a higher loss of RM311 mil compared to RM158 mil a year ago due to the impairment charges on the assets worth RM256 mil.
Its group MD, Mohamad Helmy Othman Basha, said the group’s performance was adversely impacted by the volatility of commodity prices and unpredictable weather coupled with its loss-making plantation operations in Liberia.
“The results were also largely affected by the impairment charges for our assets in Liberia as we prepare to exit our business there.
“Our operations in Liberia continue to face challenges and uncertainties. It continues to report losses to date since its commencement,” he said.
