• Maintain HOLD (TP: RM2.16) Sarawak Plantations (SPLB)'s 1Q24 core PBT of RM15.4mn (+6 YoY%) was broadly in line with our expectations. This is after excluding the effects of fair value changes in biological assets, which amounted to a gain of RM10.9mn against RM1.5mn in 1Q23, on the back of 14% YoY increase in revenue to RM127.3mn. The increase in profit was primarily due to the effect of higher sales volume registered for CPO and PK, despite lower realised average selling price (ASP) of CPO during the period. ASP of CPO decreased slightly by 1% YoY to RM3,898/MT (PK price increased by 7% YoY to RM2,062/MT); whilst sales volume of CPO and PK increased by 16% and 14% respectively to 26,895 MT and 5,929 MT. The company declared a 1st interim DPS of 5sen, similar to DPS declared in 1Q23. Looking forward, we believe that any potential earnings downside will be mitigated by improvements in production and higher sales volume of CPO and PK. Maintain a HOLD call with new TP of RM2.16; based on historical low 3-yrs avg. P/BV of 0.77x and FY24/25F BV/share of RM2.80.

• Key highlights. In 1Q24, circa 200 hectares of enhancement areas have been normalised, leaving around 200 hectares remaining to be normalised. Conversely, approximately 2,192 hectares remaining as encumbered areas to be normalised in 2024.

• Earnings Revision. No change in earnings forecast.

• Outlook. We are cautiously optimistic on SPLB, motivated by positive expectations for output growth and continual strengthening of balance sheet. Nonetheless, the potential downside risk to earnings in the near term, however, may stem from lower-than-expected ASPs of palm products and lower-than-projected production (both from own crops and third parties), even as management remains focused on increasing productivity at all levels of operation and reducing unit production costs.

Source: BIMB Securities Research - 23 May 2024