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PublicInvest Research

Author: PublicInvest   |   Latest post: Wed, 21 Oct 2020, 10:11 AM

 

Sarawak Plantation Berhad- Start Off On the Right Foot

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1QFY20 core earnings of RM7.8m was in line with our and consensus expectations, making up 27% and 22%, respectively. The steady results were attributed to an increase in both CPO product prices and FFB production. Nevertheless, we expect earnings growth to slow in 2Q on lower CPO prices, though partly mitigated by stronger output growth. A first interim dividend of 5sen was declared for the quarter. Maintain Outperform call with an unchanged TP of RM1.92 based on 16x FY21 EPS.

  • 1QFY20 revenue (QoQ: -9.2%, YoY: +42.5%). The Group’s plantation sales jumped 43% YoY to RM98.9m, led by an increase in both CPO prices and FFB production. During the quarter, FFB production rose 11% YoY to 65,269 mt. It also had an external FFB production of 102,277 mt, making up 61% of the total FFB processed. Meanwhile, average realised CPO price jumped 32.5% YoY to RM2,643/mt. Average realized palm kernel price in 1QFY20 rose from RM1,142/mt to RM1,597/mt. FFB yield improved from mt to mt while oil extraction rate stood at 19.86%.
  • 1QFY20 core earnings jumped 37% to RM7.8m. Excluding the change in fair value of biological assets amounting to RM1.7m, the Group’s core earnings rose 37% YoY to RM7.8m, mainly driven by stronger plantation margin. During the quarter, EBIT margin improved from 8.3% to 10.3%. 1QFY20 all-in CPO cost of production (ex-palm kernel credit: RM200/mt- 300/mt) averaged at RM2,015/mt (FFB: RM315/mt).
  • Outlook guidance. Meanwhile, management has targeted a strong FFB production growth of 23% YoY to 346,000 mt this year on the back of yield improvement from 1,600ha enhancement area transferred to harvestable area after achieving FFB yield of 10.2mt/ha. For Jan-April, it jumped 18.6% YoY and we expect to see a strong catch-up in the subsequent months. It has allocated RM20m capex for FY20 with RM8.5m for the replanting of 1,100ha landbank, another RM4m for 2,800ha enhancement area, RM4m for the new planting activities of 500ha and RM3m for mill improvement. (1QFY20: RM4.1m of the budgeted capex already spent). Total encumbrance area stood at 6,400ha as of 1QFY20 with 500ha area expecting to be recovered this year. Total harvestable area is expected to expand from 19,000ha to 20,890ha this year (FY19: 19,000ha + new mature area: 1,390ha - replanting area: 1,100ha + enhancement area: 1,600ha). For FY20, management expects an additional mature area of 1,390ha with 990ha from northern already declared mature in early-2020 and remaining 400ha from the northern region will turn into mature area in the 2H. In terms of forward sales, it locked in three CPO sales contracts with collective outstanding CPO amount of 15,500mt (18% of full-year CPO production) at an average price of RM2,519/mt. Its CPO price target for the remaining quarters range at RM2,100/mt-2,200/mt.

Source: PublicInvest Research - 29 May 2020

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