• Maintain HOLD (TP: RM2.16) Sarawak Plantations (SPLB)'s 1H24 core PATAMI of RM24.9mn (+11% YoY), was in line with our forecast but fell short of consensus estimates, at 50% and 36% of full year forecast respectively. This is after excluding the effects of fair value changes in biological assets, which amounted to a gain of RM19.9mn against RM6.1mn in 1H23. The increase in core PATAMI profit was primarily due to the effect of higher sales volume and realised average selling prices (ASP) for CPO and PK. The ASP of CPO increased by 2% YoY to RM3,952/MT (PK price increased by 14% YoY to RM2,156/MT); whilst sales volume of CPO and PK increased by 5% and 3% respectively to 53,566 MT and 11,631 MT. 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 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 2Q24, both revenue and core PATAMI increased to RM131.5mn (3% QoQ, 3% YoY) and RM16.8mn (106% QoQ, 41% YoY) respectively. These strong results were mainly due to higher realised ASP for both CPO (RM4,007/MT; +3% QoQ, +6% YoY) and PK (RM2,253/MT; +9% QoQ, +21% YoY). Additionally, operating cost particularly for manuring (especially fertilizer), were lower leading to a significant improvement in earnings. Overall, the core PATAMI margin improved to 12.8% (+6.4 ppts QoQ, +3.4 ppts YoY).

• Earnings Revision. No change in earnings forecast.

• Outlook. We are cautiously optimistic on SPLB’s outlook, supported by positive expectations for output growth (management guided c.11% YoY increase in production) and a strong balance sheet with net cash of 48sen/share. Nonetheless, the potential downside risks to earnings in the near term is lower-than-expected ASPs for palm products - given that pure planters’ earnings are highly correlated to the ASP and production level of palm products.

Source: BIMB Securities Research - 26 Aug 2024