AGAINST the backdrop of spiralling crude palm oil (CPO) prices, some plantation analysts have upped the target price of Sime Darby Plantation Bhd by as much as RM1.
TA Securities Research tweaked the planter’s FY2022F and FY2023F earnings higher by 20.3% and 6.4% respectively after factoring in (i) higher CPO price assumptions to RM3,500/metric tonne (MT) and RM3,300/MT for FY2022 and FY2023 (vs RM3,100/MT and RM3,000/MT previously); (ii) higher production costs; and (iii) lower contribution from the company’s manufacturing division.
“We maintain Sime Plantation on “buy” with a higher TP of RM5.97 (previously RM4.97) based on 24 times CY2022 price-to-earnings ratiom (PER),” projected analyst Angeline Chin in a results review.
“The key risks are (i) a down cycle in CPO price; (ii) escalation in production cost; (iii) global economic slowdown; (iv) lower-than-expected FFB (fresh fruits bunches) production; and (v) increasing supply of soybean oil in the market.”
Excluding all exceptional items, TA Securities Research said Sime Plantation’s 4Q FY2021 core net profit increased 2.5 times to RM524 mil on the back of 52.5% increase in revenue. Both the company’s upstream and downstream divisions registered better performance compared to last year.
Cumulatively, the group registered a core net profit of RM2.34 bil in FY2021 compared to RM614 mil a year ago. This has enabled the group to declare a final single tier dividend of 12.38 sen/share for 4Q FY2021 which brings its total FY2021 dividend per share (DPS) to 20.28 sen/share from 11.57 sen/share in FY2020.
Meanwhile, Kenanga Research upgraded Sime Plantation’s target price to RM5.25 (from RM4.10 previously) but remained wary of (i) recent forced labour issues which may temporarily deny the planter’s higher or premium valuations; (ii) forward EPS (earnings per share) hinges very much on CPO prices with limited FFB growth; and (iii) average CPO is expect to ease in FY2023.
“Also, historically our preferred plantation exposure, Kuala Lumpur Kepong Bhd, enjoyed higher ROEs (return on equity) compared to Sime Plantation,” justified analyst Teh Kian Yeong who reiterated a “market perform” call on the company. “Nevertheless, the group should gain from elevated CPO prices in FY2022.”
However, Maybank IB Research downgraded Sime Plantation to “hold” (from “buy” previously) but with a slightly higher target price of RM4.78 (from RM4.47 previously) as it rolled forward its valuation year to 2023 to reflect a more normalised level of earnings.
“Following our industry-wide CPO average selling price (ASP) revisions to RM4,100/MT (from RM3,200/MT) for 2022 and RM3,200/MT (from RM3,000/MT) for 2023, we raise our FY2022E/2023E core EPS forecasts for Sime Plantation by 69%/25% respectively,” noted analyst Ong Chee Ting.
“Due to rising cost pressures, we incorporated higher unit cost of output by 10% year-on-year (yoy) for FY2022E at the lower end of Sime Plantation’s +10-15% yoy absolute cost guidance. We (also) introduce our FY2024E EPS forecast.”
At 10.27am, Sime Plantation was down 19 sen or 3.88% with 1.71 million shares traded, thus valuing the company at RM32.42 bil. – Feb 21, 2022
