Sime Darby Plant sees profits in 3Q, warns of stagnant FFB for FY21

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Sime Darby Plant’s upstream operations reported a strong PBIT of RM913 million, more than triple the PBIT of RM273 million recorded in the previous year corresponding quarter.

KUCHING: Sime Darby Plantation Bhd’s (Sime Darby Plant) net profit surged to RM610 million in the third quarter ended Sept 30, 2021, from RM190 million previously, mainly driven by the stronger upstream segment.

Revenue jumped to RM5.06 billion from RM3.18 billion in the same period last year, it said in a filing with Bursa Malaysia.

“Upstream operations reported a strong profit before interest and tax (PBIT) of RM913 million, more than triple the PBIT of RM273 million recorded in the previous year corresponding quarter, primarily due to higher average crude palm oil (CPO) and palm kernel (PK) prices realised as well as an improved oil extraction rate (OER).

“The key drivers compensated for the two per cent decline in the production of fresh fruit bunches (FFB) during the current quarter,” the company said in a statement.

The group’s downstream segment, via Sime Darby Oils, faced a challenging quarter as its PBIT declined to RM7 million from RM71 million in the previous year, mainly attributed to the lower profits generated by its Asia Pacific operations.

“The Asia Pacific bulk operations incurred unrealised loss on commodity hedges for the current quarter due to a rising CPO price landscape but this was partially mitigated by improvements in overall margin and sales volume.

“Although the differentiated subsegment has seen a growth in sales volume, the decline in margin dragged down its reported profits,” it added.

The plantation group expects palm oil prices to remain elevated at least until the end of the year before a possible downward adjustment in the second quarter of next year when supplies are anticipated to improve.

Public Investment Bank Bhd (PublicInvest Research) reiterated management’s expectations of stagnant FFB production growth for FY21 and a low single-digit growth for FY22 as the foreign labour shortage issue may persist.

“Cost of production for the 9MFY21 averaged at RM1,750 per metric tonne (MT), and it is expected to inch up by 10 to 15 per cent for 2022 as fertiliser cost jumped 30 to 40 per cent since few months ago.”

Commenting on the impact of taxation on prosperity tax, PublicInvest Research believed that the impact would be small to Sime Darby Plant as there are only two subsidiaries will be subject to the one-off taxation.

“Meanwhile, it reckons that the impact from the taxation on foreign source income is quite material as it made up more than 55 per cent of the group’s bottomline,” it commented.

“Additionally, the first batch of 200-300 foreign workers are expected to arrive in early-2022, which will help resolve its worsening foreign worker shortage issue. About 35 per cent of production from Peninsular Malaysia has been locked in at RM3,500 per MT for 2022.

“Lastly, the capex for FY22 is slightly higher as the Group plans to accelerate its replanting activities from 13,000 hectares to 25,000 hectares next year.”