KEY INVESTMENT HIGHLIGHTS

• Earnings was lower mostly due to seasonal factors
• Oil palm profitability/margins remain decent
• Estate activities continue intact
• Earnings estimates; Revised lower for FY25
• Maintain NEUTRAL with a revised TP of RM1.98

Within expectations. After excluding the change in fair value of biological assets and PPE written off, 2QFY24 core PATAMI surged to RM17.0m (+42.8%yoy) brings 1HFY24 to RM24.6m (+16.8%ytd) which is considered within expectations at 36%/39% of our/consensus full-year estimates. On a yearly basis, the 2QFY24 PATAMI were stronger driven by better upstream performance with higher Operating Profit of MYR24.1m (+70.8%yoy) recorded, underpinned by higher CPO ASP (MYR4,007/t;+5.6%yoy) and better FFB output (+16.0%yoy).

Oil palm profitability. Profitability for estate jumped by double-digit growth to RM21.4m (+75.0%yoy), mainly attributed by the elevated average selling price CPO and PK realized of RM4,007/Mt (+5.6%yoy) and RM2,253/Mt (+20.7%yoy), respectively. Mill earnings on the other hand, contracted to RM5.0m (-35.2%yoy), mainly due to the lowered OER of 19.64% recorded. Mixed margins were seen, reaching 36.3% (+11.1pts) and 4.2% (-2.4pts) respectively, owing to the reduced all-in cost of production at approximately RM2,729/Mt (vs 2Q23: RM2,979/Mt).

Oil palm operations. On the operational front, thanks to the dry weather conditions, harvestable hectarage and FFB production jumped by +11.0%yoy and +16.0%yoy respectively, supporting the FFB yield to be around 3.81Mt/Wha. Additionally, external purchased remained a significant contributor, lifting the FFB processed to surge by +2.0%.

While OER level remained supportive at 19.64%, as the ripeness of the fruitlet was somewhat affected by the past dry weather months.

Earnings forecast. We are tweaking our earnings forecasts by +2.5%yoy/-17.2%yoy/-27.3%yoy for FY24E-26F, after considering new average CPO TP price revision of RM3,800/Mt/RM3,600/Mt/RM3,400/Mt on combination of elevated cost of production.

Maintain NEUTRAL. We maintain our NEUTRAL call with a revised TP of RM1.98 as we rollover our valuation to PER of 8.8x - nearly 2y average mean by pegging FY25F EPS of 22.0sen. Note that SPB is purely upstream player, and the share price is highly connected with CPO movement 0.89 correlation, hence any upward trajectory in CPO prices would provide trading opportunity in the stock.

Source: MIDF Research - 26 Aug 2024