• Upgrade to BUY (TP: RM2.83). Sarawak Plantations (SPLB)'s 9M24 core PATAMI (excluding fair value of biological assets of RM29.1mn) came in at RM46.7mn, exceeding our full year forecast but was in-line with consensus, accounting for 93% and 70% respectively. The positive deviation from our forecast was primarily driven by lower-than-expected production costs. Core PBT for 9M24 rose by +9% YoY, despite a minimal revenue decline of 1% YoY. This was mainly attributed to lower production costs, likely stemming from lower fertilizer prices and maintenance cost. We remain optimistic on SPLB’s performance in 4Q24 and 2025, supported by anticipated higher CPO prices, increased production and stable unit production costs. A higher 2 nd interim DPS of 15sen was declared, bringing total FY24 DPS to 20sen (FY23: 10sen) and translating into an attractive dividend yield of 8.6%. We upgrade to BUY call with a higher TP of RM2.83 (from RM2.16), reflecting an upward revision in our FY24-25 earnings forecast. Our valuation is based on near historical 5- year average P/BV of 1.0x and FY25F BV/share of RM2.83.

• Key Highlights. In 3Q24, both revenue and core PBT declined to RM149.1mn (-14% YoY) and RM32.5mn (-8% YoY) respectively, primarily due to lower sales volumes of CPO (-20% YoY) and PK (-24% YoY), despite registered higher realised average selling prices (ASP) for CPO (RM3,945/MT; +5%) and PK (RM2,462/MT; +28%) respectively. On QoQ basis, revenue increased by +13%, thanks to higher sale volumes of palm products and higher PK ASP (see table 2). In tandem, core PBT rose significantly by +27% QoQ, supported by lower production costs, particularly lower fertilizer prices, which led to a 2.4 ppts margin improvement to 14.7%. Unit production cost were lower in 3Q24 at RM2,300/tonne compared to RM2,400/tonne in 2Q24.

• Earnings Revision. We revised upward our FY24-FY25 earnings forecasts by 16%-40%, after factoring in higher CPO prices assumption of RM4,100/tonne, higher margin estimates and housekeeping adjustments.

• Outlook. We are optimistic on SPLB’s earnings prospect for 4Q24 and 2025, given pure planter stands to benefit from higher CPO prices and expected good production growth (our estimate FY24F: +7% YoY & FY25F: +10% YoY). The proposed minimum wage hike poses a challenge, but it is expected to be partially mitigated by continued operational efficiencies

Source: BIMB Securities Research - 25 Nov 2024