Sarawak Plantation Bhd - Production Shortfall Tempers Recovery
Fri, 22-Aug-2025 07:46 am
by Steven Chong • Apex Research

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SWKPLNT (5135)

Target Price (RM)

2.50

Recommendation

Hold

  • SPLB reported 2QFY25 CNP of RM17.7m (-3.4% QoQ, +6.5% YoY), bringing 6MFY25 CNP to RM 35.9m (+46.0% yoy), which was below expectations, accounting for 42.9%/45.2% of ours and consensus forecasts respectively. The variance stemmed from weaker-than-expected CPO production as the Group scaled back third-party FFB purchases.

  • FY25 FFB target reduced to 377k MT (from 400k MT), after a disappointing 1H output. 

  • We cut our FY25F earnings forecast by 7.1% to reflect the downward revision in FFB output guidance and elevated fertiliser costs. That said, our FY26F forecast is lifted by 4.1%, as we adjust our CPO price assumption to RM4,000/MT from RM3,900/MT.

  • We re-iterate our HOLD call with a higher TP of RM2.50, after rolling forward our valuation base year to FY26. The revised TP is derived by applying a higher 8.4x P/E multiple (vs. 7.6x previously) to reflect the recent re-rating across upstream planters.

 

Results below expectations. The Group reported a 6MFY25 CNP of RM35.9m, which was below expectations, accounting for 42.9% and 45.2% of our projection and consensus full-year estimates respectively. The variance stemmed from weaker-than-expected CPO production as the Group scaled back third-party FFB purchases.

 

YoY. 2QFY25 CNP rose 6.5% YoY to RM17.7m, underpinned byhigher realised CPO (+0.8% to RM4,039) and PK (+40.9% to RM3,175) prices. Plantation segment GP expanded 9.3% YoY in tandem with firmer ASP, while the milling segment’s GP improved 11.4% on the back of improved OER and tighter cost controls. However, revenue eased 0.4% YoY to RM131.0m as lower CPO and PK output offset the ASP gains.

 

QoQ. CNP dropped 3.4% QoQ, reflecting weaker CPO (-14.6%) and PK (-8.0%) ASP. Similarly, revenue slipped 3.3% QoQ.

 

Outlook. We gather that management has revised its FFB production guidance down to 377k MT (from 400k MT), as 1HFY25 output came in below expectations at 39.6% of the initial full-year target. On the cost front, management guided for a higher unit cost of RM2,900/MT in FY25 (vs RM2,700/MT in FY24), largely due to the elevated fertiliser prices. We believe this could place pressure on margins, if CPO prices were to ease below the RM4,000/MT levels. That said, the Group may cushion the impact through operational efficiencies while boosting CPO output via third-party FFB purchases. Looking ahead, we expect 3QFY25 earnings to stage a sequential recovery in line with seasonal peak production trends.

 

Earnings Revision. We cut our FY25F earnings forecast by 7.1% to reflect the downward revision in FFB output guidance and elevated fertiliser costs. That said, our FY26F forecast is lifted by 4.1%, as we adjust our CPO price assumption to RM4,000/MT from RM3,900/MT.

 

Valuation. We reiterate our HOLD call on SPLB with a higher TP of RM2.50 (previously RM2.30), after rolling forward our valuation base year to FY26. The revised TP is derived by applying a higher 8.4x P/E multiple (vs. 7.6x previously) to reflect the recent re-rating across upstream planters. Our assigned multiple represents a 22% discount to the peer average of 10.8x, justified by SPLB’s relatively weaker FFB yield profile, higher unit costs, and softer net margins. We ascribe a 0% ESG adjustment, in line with the Group’s 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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