Sarawak Plantation saw its 9MFY20 core earnings tripled to RM30.5m on the back of stronger CPO prices and staggering growth in FFB production. The impressive results made up 76% of our full-year expectation but exceeded the street expectation, making up 91%. In view of the current strong CPO price momentum, we expect to see stronger earnings for the final quarter. Hence, we revise up our FY20-22 earnings forecasts by 16%-19% by assuming margin expansion due to yield improvement. A second interim dividend of 5sen was declared for the quarter. Maintain Outperform call with a higher TP of RM3.15 based on 18x FY21 EPS.
3QFY20 revenue (QoQ: +40.9%, YoY: +46.7%). Driven by improved CPO prices and higher FFB production, the Group’s plantation sales rose 46% YoY to RM137.2m, the highest since 2011. During the quarter, FFB production increased by 24% YoY to 103,307mt. (9MFY20: 257,976mt, YoY: +28%). Meanwhile, 3Q average realised CPO price leapt from RM1,988/mt to RM2,681/mt, (9MFY20: RM2,558/mt, YoY: +30%) while average realized palm kernel price was up from RM1,056/mt to RM1,405/mt (9MFY20: RM1,412/mt, YoY: +32%). 9MFY20 FFB yield increased from 11.86mt/ha to 13.21mt/ha while oil extraction rate slipped from 20.34% to 19.45%, dragged by unfavourable weather condition.
3QFY20 core earnings surged 165% YoY to RM15.4m. Excluding the change in fair value of biological assets amounting to RM4.2m, the Group’s core earnings skyrocketed from RM5.8m to RM15.4m, bolstered by stronger plantation margin. During the quarter, EBIT margin surged from 8.9% to 16.7%. 9MFY20 all-in CPO cost of production (ex-palm kernel credit) rose from 9MFY19’s RM1,730/mt to RM1,800/mt, attributed to an increase in upkeep cost and estate cost. (cash cost: RM1,450/mt, exdepreciation and amortization and palm kernel credit)
Outlook guidance. Meanwhile, management has targeted FFB production growth of 18% to 415k mt for FY21 on the back of yield improvement from the enhancement area transferred to harvestable area. Harvestable area is expected to increase from current 19,523ha to 20,700ha by end-2021. As of 3QFY20, enhancement area totaled 2,900ha and is expected to decline to 1,600ha before it normalizes by 2022. As ageing plantation area makes up almost 22% or 4,300ha of the total planted area of 19,523ha, management plans to increase its replanting size from 1,200ha to 1,600ha next year. Average age profile stands at 13 years old. Given the current strong CPO price momentum, management has reduced its forward sales. It has outstanding forward CPO sales of 2,000mt at RM3,000/mt, 2,000mt at RM3,030/mt and 3,000mt at RM2,360/mt On the encumbered area, it remains at 6,300ha. Meanwhile, management also guided that it experienced about 3% worker shortage in the past, mainly in the harvester field.
