Excluding gain on fair value of biological assets of RM29.1m and PPE write-off amounting to RM0.3m, Sarawak Plantation registered 9MFY24 core earnings of RM47.3m, making up only 60% and 68% of our and the street full-year expectations, respectively. Nevertheless, we expect a strong catch up in the final quarter on the back of stronger CPO prices. Maintain Outperform call with an unchanged TP of RM2.94 based on 10x FY25 EPS. A second DPS of 15sen was declared for the quarter, bringing the cumulative DPS to 20sen.

• 3QFY24 revenue (QoQ: +13.4%, YoY: -13.7%). Despite an increase in FFB production and stronger CPO prices, revenue fell 13.7% to RM149m, dragged by a decline in OER due to lower external FFB purchase as the it became increasingly expensive. We note that its seeds sales more than doubled from 300k to 700k, although its contribution to overall sales remained immaterial. 3QFY24 FFB production climbed 3.7% YoY to 99,096mt (9MFY24: 249,033mt, +9.2% YoY) while third party purchase FFB tumbled 38.9% to 71,353mt. 3QFY24 average realised CPO price advanced from RM3,759/mt to RM3,945/mt (9MFY24: RM3,950/mt) while average realized palm kernel price jumped from RM1,924/mt to RM2,462/mt (9MFY24: RM2,265/mt). 3QFY24 FFB yield declined from 4.79mt/ha to 4.6mt/ha (9MFY24: 11.73mt/ha) while OER slipped from 19.93% to 19.3%, dampened by lower FFB processed.
• 3QFY24 core earnings slipped 15.1% YoY to RM22m. Excluding the gain on fair value of biological assets (RM9.2m), the group's core earnings retreated from RM25.9m to RM22m on the back of lower plantation earnings. 3QFY24 all-in CPO production cost remained at RM3,150/mt (9MFY24: RM3,400/mt) attributed to i) a decline in fertiliser cost, and ii) higher FFB production, offset by an increase in i) FFB external purchase cost, ii) upkeep cost and iii) admin cost due to higher mature area.
• Outlook guidance. Management has revised down its FY24 FFB production target from 365,000 to 340,000 as production has entered early down cycle period. For 2025, it has projected FFB production of 420,000mt (YoY: +23%) based on harvestable area of 21,000ha and FFB yield of 20%. It has also set a CPO price target of RM4,600/mt for 2025. Mature and immature area currently stood at 21,300ha and 4,500ha, respectively. Meanwhile, the first production recovery is expected to happen in April 2025. 1,000ha was replanted and is on track to replant up to 3,500ha by year-end. It has planned to replant another 2,700ha in 2025 while there will be an additional mature area of 1,100ha. Outstanding encumbered and enhancement areas stood at 2,100ha and 70ha, respectively. Fertiliser application has reached 60% in Round 3. The fertilizer costs for Round 3 were stagnant with MOP and compound standing at RM1,400/mt and RM,1450/mt, respectively. The group has received lower quotation of RM1,300/mt for 2025 fertiliser application. Meanwhile, 100% of its CPO sales are on the spot market. Lastly, the group has allocated a higher capex of RM46m compared to FY23's RM36m.

Source: PublicInvest Research - 25 Nov 2024