Sime Darby Plant pick up earnings momentum
KUALA LUMPUR: Analysts expect Sime Darby Plantation Bhd (Sime Darby Plant) to see its earnings momentum pick up in financial year 2021 (FY21) a er it recorded a turnaround in its financial performance reaping a net profit of RM1.2 billion for FY20 compared with a net loss of RM200 million a year ago.
The planter’s revenue was be er at RM13.08 billion compared with RM12.06 billion previously, according to its filing with Bursa Malaysia.
Kenanga Investment Bank Bhd (Kenanga Research) deemed these results to be within its estimate, but below consensus’ due to higher-than-expected crude palm oil (CPO) price realised.
To note, its FY20 fresh fruit bunch (FFB) output of 9.28 million metric tonnes (MT) is spot on with Kenanga Research’s estimate at 100 per cent.
“Year on year (y-o-y) FY20 core net profit rose as higher CPO price outstripped the decline in FFB output,” it said in its notes.
“This led to a jump of 882 per cent in Upstream recurring profit before income and tax (PBIT), pre-fair value gain/loss adjustments.
“Quarter on quarter (q-o-q), 4QFY20 core net profit rose on the back of 29 per cent improvement in upstream recurring PBIT as higher CPO price overshadowed lower FFB output, and surge in downstream recurring PBIT by 185 per cent from be er margins and sales volume in Asia Pacific and Europe.”
Even a er accounting for labour shortage, Sime Darby Plant expects FY21 FFB output to at least match that of FY19 which translates to a three per cent growth. This is similar to
Kenanga Research’s four per cent growth estimate.
“What is also encouraging is that the group has alleviated its labour shortage situation – from 3,400 workers previously – to about 3,100 workers now,” it highlighted. “From what we understand, the group has locked in sales for 70 per cent of its fullyear production for Malaysia at slightly below RM3,000 per MT.
“Malaysia accounts for the bulk of the group’s production by 53 per cent. We are positive on this for one main reason – it reduces the impact of CPO price volatility on earnings, giving us greater clarity towards FY21 earnings.”
Moving forward, the team over at MIDF Amanah Investment Bank Bhd (MIDF Research) expect significant improvement in Sime Darby Plant’s earnings supported by favourable CPO price.
“Nonetheless, we remain concerned on possible impact to the group’s FFB production in view of the shortage of foreign labour and unfavourable weather pa ern (like flooding at certain estates) which may interrupt bunch pollination,” it said in its own notes.
“As for the downstream segment, we expect it to continue performing well on the back of be er performance of bulk business especially from the Europe operations.”
Despite the US banned imports of palm oil from Sime Darby over allegations of forced labour, MIDF Research believed that the group’s outlook will remain resilient given that the group is currently in the process of appointing an independent assessor to review and ensure that there is a safe environment for all its workers.