Analysts lower FY22 earnings forecasts for Sime Darby Plantation

KUALA LUMPUR: Both Hong Leong Investment Bank (HLIB) and Public Investment Bank (PIVB) have lowered their earnings forecasts for Sime Darby Plantation (SDP) for this financial year ending Dec 31, 2022 (FY22).

HLIB reduced its forecast for SDP’s FY22-FY23 core net profit by 2.7-19.0 per cent, while PIVB cut its FY22 earnings forecast by 16 per cent but maintained its FY23-FY24 earnings projections.

In its research note, HLIB said it tweaked the FY22 forecast mainly to reflect the lower crude palm oil (CPO) price assumption of RM5,050 per tonne versus RM5,500 per tonne earlier, lower fresh fruit bunches (FFB) yield assumption in Malaysia, and higher earnings before interest and taxes (EBIT) margin assumption at the downstream segment for FY22.

For FY23, the investment bank made a lower CPO price assumption of RM4,000 per tonne against RM4,500 per tonne previously and higher EBIT margin assumption at the downstream segment.

“We raise our FY2024 core net profit forecast by 17.7 per cent to reflect higher EBIT margin assumption at downstream segment.

“Post-earnings revisions, we maintain our ‘hold’ rating on SDP with a higher target price (TP) of RM4.49 (from RM4.23 previously) based on 18 times revised FY2022 core earnings per share of 24.9 sen,” said HLIB.

Yesterday, SDP reported a 35 per cent year-on-year drop in net profit to RM396 million for the third quarter ended Sept 30, 2022, bringing the nine-month earnings to RM1.93 billion.

HLIB said it considered the nine-month core net profit of RM1.7 billion within its expectation, accounting for 71.2 per cent of the bank’s full-year estimate.

Against consensus, the results came in below, accounting for only 64 per cent.

In its research note, PIVB remained “neutral” on SDP with an unchanged TP of RM4.60.

The investment bank cut its FY2022 earnings forecasts by 16 per cent on weaker Malaysian FFB production due to strict recruitment process.

However, it made no changes on its FY2023-2024 earnings forecasts.

PIVB said currently, the harvester shortage in Malaysia stood at 3,000-4,000, or 32 per cent of total requirement.

“On the positive side, about 200 foreign workers have been recruited on a weekly basis and is expected to bring in a total of 3,000 workers by year-end before reaching 6,000 workers by mid2023.

“Management expects to see double-digit FFB production growth for FY2023 as production normalises,” it said.

On the forward sales policy, PIVB said eight per cent of Malaysian production had been locked at RM4,400-RM4,500 per tonne.