Sarawak Plantation Bhd - Stable Yield Growth with CPO Price Headwinds
Wed, 07-May-2025 07:32 am
by Steven Chong • Apex Research

Counter

SWKPLNT (5135)

Target Price (RM)

2.30

Recommendation

Hold

Executive Summary

  • SPLB is expected to post strong 1QFY25 results, though earnings may soften in the coming quarters due to weaker CPO prices.

  • Despite the recent headwinds in CPO prices, we maintain our full-year CPO price forecast at RM4,300, as the downturn remains in line with our estimate.

  • We re-iterate our HOLD call with a target price of RM2.30, based on 7.6x P/E multiple pegged to FY25 EPS of 30sen.

 

Replanting activities for FY25 still above the usual target at 5%.SPLB plans to replant 2,800-ha in FY25, a reduction from 4,200-ha in FY24, yet still exceeding its typical annual replanting target of 5%. The aggressive replanting efforts have rejuvenated the plantation age profile, with the average palm age improving to 9 years in FY24 (from 11 years in FY23). As a result, the proportion of immature areas rose to 25% (from 17%), while mature areas declined to 75% (from 83%). 

 

Improving FFB yield ahead despite aggressive replanting activities. Despite the high replanting activities, we expect limited disruption to CPO production, as FFB yield will be supported by a higher proportion of palms entering their peak-yielding phase. Furthermore, third-party FFB purchases are forecast to grow +25% yoy to 280k mt in FY25, which should help mitigate the impact from lower in-house production. We maintain a conservative FY25 CPO output forecast of 116k mt, representing a +9% yoy growth.

Top of Form

 

Recovery of encumbered area still ongoing. The Group anticipates its harvestable area to remain at c.21k-ha for FY25. As of now, 4,300-ha of land previously encumbered by local communities have been recovered, while 2,300-ha remain unresolved. SPB continues to target an annual recovery rate of 500-ha, with efforts focused on resolving the remaining land disputes.

 

Estimated CPO price of RM4,300 for FY25. After reaching multi-year highs in late FY24, CPO prices slipped below the RM4,000 mark by late April 2025. This weakness was driven by rising geopolitical uncertainties and expectations of a seasonal rebound in FFB yields. Adding to the bearish sentiment, Brent crude prices fell to c.USD60 bbl following OPEC+’s decision to raise output by 411,000 bpd starting Jun 2025. We opined the softer brent crude prices could constrain the implementation of biodiesel in Indonesia, given the heavier subsidy burden required to sustain the B40 mandate. Despite these headwinds, we maintain our full-year CPO price forecast of RM4,300, as the current market correction are still within our expectations.

 

Earnings revision. We make no changes to our earnings forecasts, as our CPO price assumptions remain intact. SPB is likely to post strong 1QFY25 results, underpinned by the firm CPO prices earlier in the year. That said, we expect earnings to taper in the following quarters in line with the ongoing softness in commodity prices.

 

Valuation & Recommendation. Re-iterate our HOLD recommendation on SPB with a target price of RM2.30, by pegging 7.6x forward P/E multiple to FY25F EPS of 30 sen and 0% ESG factored premium/discount based on three-star ESG rating.

 

Risk. 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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