Sarawak Plantation Berhad - Dragged by lower CPO production
Mon, 25-Nov-2024 07:18 am
by Steven Chong • Apex Research

Counter

SWKPLNT (5135)

Target Price (RM)

2.50

Recommendation

Hold

Summary

  • Sarawak Plantation recorded CNP of RM21.8m (-20.0% yoy, +58.2% qoq) in 3QFY24, bringing 9MFY24 CNP to RM46.7m (-3.4% yoy), which was below ours and consensus’ expectations, accounting for 64% and 68% of forecasts respectively.

  • Trimmed our earnings forecast for FY24-FY26 by -5.0%/-20%/-15% respectively to account for weaker projected CPO sales following the decline in production.

  • Maintained our HOLD recommendation, with a lower target price of RM2.50 based on 9.3x PER pegged to FY25F EPS of 27.1 sen.

     

Results Review

  • Results review. Sarawak Plantations’ 3QFY24 CNP stood at RM21.8m (-20.0% yoy but grew +58.2% qoq) after excluding FV gain on biological assets of RM9.2m. The weaker yoy CNP was due to lower CPO output from cutback on third party FFB purchases. Similarly, revenue recorded at RM149.1m, (-13.7% yoy and +13.4% qoq) despite higher realised CPO and PK selling prices. 

 

  • Results below expectation. The Group’s 9MFY24 core net profit of RM46.7m was below expectation, meeting only 64% and 68% of ours and consensus estimates. That said, we expect earnings to regain momentum moving into 4QFY24, led by the surge in CPO ASP.

 

  • Operations Highlights. 3Q24 FFB production climbed +3.7% yoy but CPO and PKO production dropped to 29k mt (-23.5% yoy) and 6.5k mt (-28.5% yoy) respectively due to significant decline in third-party FFB purchases to 71k mt (-63.7% yoy). We gather that the rise in FFB prices has resulted in higher production costs for the Group’s mill, prompting a reduction in purchases to protect margins. Meanwhile, average selling price of CPO grew to RM3,945/mt (vs RM3,759, +4.9% yoy) while PK selling price rose to RM2,462/mt (vs RM1,924/mt, +28.0% yoy). 

 

  • Declared second interim dividend of 15.0 sen per share. We believe this will be the final dividend declared by the Group for FY24. Total dividend for FY24 could end up at 20.0 sen per share, which translates into a decent dividend yield of 6.6% based on current share price of RM2.32.

 

  • Outlook. We slash our CPO output forecast to 110k mt (-11.6% from our previous estimate) for FY24, after taking into account the lower-than expected FFB input. We expect the Group to achieve record earnings in 4QFY24, driven by the strong increase in CPO prices, which are expected to reach c.RM4,900.

 

  • Valuation. Trimmed our earnings forecast for FY24-FY26 by -5.0%/-20%/-15% respectively to account for weaker projected CPO sales volume in tandem with decline in output. Maintained a HOLD recommendation, with a lower target price of RM2.50 (previously: RM2.60) based on 9.3x PER (+1 STDfrom 3-year average forward PE) pegged to FY25F EPS of 27.1 sen. 

 

  • Risk. EU export ban and regulations, changing weather patterns, taxation and export ban in Indonesia threatens local CPO demand and shortage of labours. 

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