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Author: PublicInvest   |   Latest post: Wed, 11 Dec 2019, 9:46 AM

 

SARAWAK PLANTATION BERHAD - More Growth to Come

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Sarawak Plantation’s core profit of RM12.1m (YoY: +24.7%) for 9MFY19 were in line with our and the street expectations, making up 74% and 73%, respectively. Despite weaker palm oil prices recorded, the stronger earnings were led by the stronger FFB production growth. The transformation plans carried out by Ta Ann’s management team have brought significant improvement to its productivity and FFB yield performance. No dividend was declared for the quarter. Maintain Outperform call with an unchanged TP of RM2.06 based on 19x FY20 PER.

  • 3QFY19 revenue (QoQ: +23.7%, YoY: +11.8%). The Group’s plantation sales rose 11.8% YoY to RM93.5m on the back of stronger FFB production growth, which outpaced the effect of weaker CPO product prices. During the quarter, FFB production climbed 20.9% YoY to 83,289mt. For the first 9 months, it rose 20.2% YoY to 202,549mt, which made up 69% of our full year projection. Meanwhile, average CPO price recorded fell from RM2,159/mt to RM1,988/mt. For the first 9 months, average CPO price recorded dipped from RM2,290/mt to RM1,976/mt.
  • 3QFY19 core net profit (QoQ: +121.7%, YoY: -44.6%). The Group’s core earnings shrank from RM9.2m to RM5.1m, as profit margin was severely affected by weaker palm oil product prices. Despite higher sales volume, the steep decline in palm kernel prices has resulted in a significant rise in cost of production.
  • Looking forward to exciting 4Q results. We expect to see stronger plantation results in the final quarter on the back of stronger FFB production growth amid an up-cycle in CPO prices. We do not rule out the possibility of earnings surprise in the final quarter given the current strong CPO price movements. It is worth noting that MPOB CPO prices had risen more than 33% to RM2,491/mt after hitting the recent low of RM1,868/mt in July. Meanwhile, palm kernel prices had also rebounded on a similar note, upping more than 30%. Based on our sensitivity analysis, every RM100 increase in CPO price, it will contribute additional of 10%-15% to the Group’s bottomline.

Source: PublicInvest Research - 20 Nov 2019

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