A year of consolidation for Sime Darby Plantationst

KUCHING: Lower fresh fruit bunch (FFB) harvest and higher costs overseas caused Sime Darby Plantations Bhd’s (Sime Darby Plant) core net profit of RM879 million for its financial year 2023 (FY23) to miss the mark for consensus estimates by 40 per cent.

Kenanga Investment Bank Bhd (Kenanga Research) observed that the variance against forecast came largely from lower FFB harvest and higher costs in Indonesia and Panua New Guinea.

“Indonesian yields were affected slightly by El Nino while heavy rain disrupted harvesting in Papua New Guinea,” it explained in its review on the planter.

To note, Sime Darby Plant’s fourth quarter of FY23 (4Q) saw its core net profit dipping quarter on quarter (q-o-q) and year on year (y-o-y) as upstream earnings before interest and tax (EBIT) fell to RM255 million.

“Overall, 4QFY23 harvest was flat q-o-q but improved strongly y-o-y to 2.394 million metric tonnes (MT) as the Malaysian upstream continued to normalise with optimum workforce amidst a fruitful season.

“4QFY23 CPO price of RM3,688 per MT was good but higher cost dragged down Indonesian contributions while PNG registered losses. We suspect heavier upkeep and still high manuring cost are still affecting 4QFY23 upstream operations.”

Downstream performance was mix, lower q-o-q but be‰er yo-y on firm European demand for its Papua New Guinea. Net debt fell further q-o-q from RM7.37 billion to RM6.90 billion.

As global edible oil demand uptick is expected to outpace supply growth, Kenanga Research believed Sime Darby Plant’s inventory outlook is tight with likelihood of minimal increase or even falling.

“CPO prices are thus expected to average around RM3,800 per MT over FY24 to FY25. Coupled with lower fertiliser and fuel costs, forward margins are expected to improve.

“Palm kernel (PK) prices, which has fallen since mid-2022, may improve from some restocking towards end-2024 or early 2025. A by-product of CPO mills, additional PK proceeds will simply lower CPO cost further.

“Moreover, in 1HFY23 the Malaysian upstream saw high costs from inflow of fresh workers which lied cost while productivity was still low.

“This situation should normalise over FY24 to FY25; hence, be‰er upstream performances can be expected over the next 12-24 months.”

As global edible oil demand uptick is expected to outpace supply growth, Sime Darby Plant’s inventory outlook is likely to remain tight with likelihood of minimal increase or even falling.