KUALA LUMPUR (Nov 24): Analysts have raised Sime Darby Plantation Bhd (SDP) earnings forecast to reflect higher upstream contribution amid improving crude palm oil (CPO) prices.

Affin Hwang Capital’s analyst Nadia Aquidah said in a note today that SDP’s 9M20 core net profit of RM467 million came in above her expectations, with the variance mainly due to higher-than-expected contribution from the upstream plantation segment.

Given the strong 9M20 results, she raised her 2020/2021 core earnings per share (EPS) by 32.3%/24.6%, mainly to take into account higher contribution from the upstream plantation division with a higher CPO assumption of RM2,620 per tonne from RM2,450 to RM2,500 per tonne previously.

“For 2022, we upgrade our core EPS by 6.8% mainly to account for higher contribution from the downstream segment and we keep our CPO assumption at RM2,500 per tonne,” she said.

In tandem with the earnings upgrade, her discounted cash flow-derived target price (TP) has been raised to RM5.06, from RM4.92. She also maintained her hold rating on SDP.

Meanwhile, Maybank Investment Bank Research’s analyst Ong Chee Ting also said in a note today that he is raising SDP's FY20 core and headline EPS by 5% and 7% respectively, following his palm oil prices and output revision.

He also raised SDP's FY21 and FY22 core EPS by 20% and 4% respectively.

“Looking forward, we expect SDP to deliver its best quarterly [results] in 4Q20 on better CPO price,” he said.

Ong had recently upgraded CPO prices for 2020 and 2021 to RM2,660 per tonne and RM2,500 per tonne, from RM2,400 per tonne.

He also trimmed SDP FY20 absolute fresh fruit bunch (FFB) output by 4%, after the group indicated that FFB production would be lower by between 3% and 4% year-on-year for this year.

Following the revisions, his target price for SDP has been revised up to RM5.24, from RM5.19.

“At 39 times of FY21 PER, SDP remains a hold,” he said.

Meanwhile, Hong Leong Investment Bank Research’s analyst Chye Wen Fei raised SDP FY20 core net profit forecast by 55.4% to RM791.4 million, mainly to account for higher CPO prices year to date.

“We maintain our FY21 to FY22 core net profit forecasts for now, pending a review on our average CPO price assumptions post results season. Based on our estimates, every RM100 per tonne change in our average CPO price assumptions will result in RM250 million change in our profit before interest and tax forecasts,” he said.

Chye also noted that SDP results beat expectations mainly due to higher-than-expected realised average CPO price.

He also maintained hold call on SDP with a TP of RM4.63.

At the time of writing, SDP fell 5 sen or 0.97% to RM5.12, valuing the group at RM35.59 billion.