Sarawak Plantation Berhad - Within expectations
Mon, 26-Aug-2024 07:32 am
by Steven Chong • Apex Research

Counter

SWKPLNT (5135)

Target Price (RM)

2.24

Recommendation

Hold

Summary

Sarawak Plantation recorded CNP of RM13.8m (+15.8% yoy, +24.5% qoq) in 2QFY24, bringing 1HFY24 CNP to RM24.9m (+8.4% yoy), which was within ours and consensus’ expectations, accounting for 34% and 36% of forecasts respectively.

Looking ahead, we expect earnings to recover lost ground in view of upcoming seasonal production upcycle.

We kept our earnings forecast unchanged with recommendation to HOLD. Our TP of RM2.24 is based on 7.9x PE with rolled over FY25 EPS of 28.3 sen.

 

Results Review

  • Results review. Sarawak Plantations’ 2QFY24 core net earnings stood at RM13.8m, grew +24.5% qoq and +15.8% yoy. The improved yoy CNP was thanks to savings in production cost from higher FFB production and softer fertiliser costs. Meanwhile, revenue recorded at RM131.5m, (+3.3% qoq and +3.2% yoy) was driven by higher selling price of CPO, PK and FFB.

  • Results within expectation. 1HFY24 core net profit of RM24.9m (excluding fair value gain in biological asset: RM19.9m) is deemed within expectation, meeting 34% and 36% of ours and consensus estimates. Looking ahead, we expect earnings to regain lost ground with the upcoming seasonal upcycle.

  • Operations Highlights. 2Q24 FFB production climbed +16.0% yoy but CPO and PKO production has dropped to 27k mt (-2.0% yoy) and 5.9k mt (-2.7% yoy) respectively as extraction rate for both products declined. On the other hand, average selling price of CPO grew to RM4,007/mt (vs RM3,793, +5.6% yoy) while PK selling price rose to RM2,253/mt (vs RM1,867/mt, +20.7% yoy).

  • Industry Highlights. Malaysia’s palm oil inventory slide by -5.4% mom in July, due to strong consumption from export market which surged by +39.9% mom. CPO production growth in July 2024 registered a whopping jump of +14% mom to 1.8m tonnes, compared to -5.2% mom in June 2024 at 1.6m tonnes.

  • Outlook. We set our FFB production forecast to 378k mt for FY24, which is below management guidance of 400k mt as we deemed it to be too optimistic. We foresee stronger earnings growth potential in FY25-26 underpinned by i) higher harvestable area stem from the continuous recovery of encumbered land (500 ha p.a.), and ii) improving FFB yield due to better average tree age profile.

  • Valuation. Maintain our HOLD recommendation, with higher target price of RM2.24 based on 7.9x PER (mean of 3-year average forward PE) to rolled over FY25F EPS of 28.3 sen.

  • Risk. EU export ban and regulations, changing weather patterns affect FFB production, taxation and export ban in Indonesia threatens local CPO demand, shortage of labours and rising operational cost.

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Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of Apex Securities Berhad and are subject to change without notice. Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.

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