KUALA LUMPUR: Sime Darby Plantation Bhd
's outlook remains challenging as it faces pressure on its margins amid the prospect of softer palm oil prices in 2023.
In a report, Kenanga research said the supply of edible oils are expected to improve, leading to lower palm oil prices, while unit costs remain elevated from sub-optimal output and high production costs.
In addition, the research firm noted that fresh fruit bunch production is expected to stay subdued in Malaysia due to the labour shortage, probably up to 2QFY23.
On a more positive note, however, Kenanga said demand should recover on supportive post-Covid reopening momentum, China's reopening and leading biodiesel markets poised for growth.
"All in all, CPO prices should soften over FY23-24 but stay firm at RM3,800/RM3,500 per MT (no change from previous assumptions) which are at the lower-end but within guidance of RM3,800-4,200 per MT for 2023.
"Our FY23-24F FFB growth of 13% and 8%, respectively, are also within guided range of 10%-15% or FY23F," it said.
Meanwhile, Kenanga said the downstream oleochemical segment, a manufacturing ingredient used in toiletries, cosmetics and more, was vulnerable to an economic slowdown.
"Coupled with thinner margins, we are expecting weaker contribution from downstream segment over FY23-24," it said.
This is despite the scheduled opening of the group's new RM80mil, 140,000 metric tonne per annum bio-diesel facility in August 2023, which should help earnings moving forward.
in FY22, Sime Darby Plantation recorded a net profit of RM2.49bil, up 10% year-on-year (y-o-y) after being bolstered by RM291mil in disposal gains.
Kenanga said the result met its forecast but missed consensus expectation by 9%.
According to the research firm, the group's core net profit actually slipped 12% y-o-y as upstream earnings before interest and tax weakened to RM2.68bil.
The research firm maintained its "underperform" call on Sime Darby Plantation with an unchanged target price of RM3.65.
