Sarawak Plantation saw its 9MFY22 core earnings rising 39% YoY to RM87m, mainly led by an increase in both CPO prices and FFB production. The 9MFY22 results were in line with our and the street full-year expectations, making up 74% and 76%, respectively. Maintain Outperform call with an unchanged TP of RM3.32 based on 13x FY23 EPS. A second DPS of 10sen was declared for the quarter, bringing YTD DPS to 15sen.

• 3QFY22 revenue (QoQ: -22%, YoY: -23%). the Group’s sales fell 23% YoY to RM162m due to lower palm product prices. FFB production rose 11.2% YoY to 98,849mt (9MFY22: 239,699, YoY: +1.9%) while third party purchase production totaled 82,024ha. However, 3QFY22 average realised CPO price slipped from RM4,330/mt to RM4,186/mt, while average realized palm kernel price fell from RM2,384/mt to RM2,286/mt. 9MFY22 FFB yield stood at 12.01mt/ha (vs 9MFY21: 11.52mt/ha) while OER stood at 19.7% (vs 9MFY21: 19.63%).

• 3QFY22 core earnings was down 32% YoY to RM20m. Excluding the change in fair value of biological assets amounting to RM1.7m, the Group’s core earnings dropped 32% YoY to RM20m, dragged by higher manuring cost and upkeep expense as well as higher effective rate due to the recognition of prosperity tax. 3QFY22 all-in CPO production cost (inclusive of depreciation, windfall tax & sales tax and PK credit) stood at RM3,200/mt (9MFY22: RM3,200mt).

• Outlook guidance. Management is targeting FFB production growth of 21% YoY to 400k mt for FY23. During the quarter, enhancement area stood at 965ha and is expected to improve to 850ha by year-end. Another 600ha is expected to normalize next year. 440ha were replanted and is expected to rise to 800ha by year-end. New mature area stood at 1,800ha with total harvestable area standing at 20k ha. As replanting activity is expected to pick up in the remaining months amid high fertilizer cost (YoY: +100%, QoQ: +45%), CPO production cost is expected to hit RM3,300/mt for FY22. On the positive side, major fertilizer cost (NOP) has started to moderate in recent months, down from RM3,900/mt to RM3,200/mt. Coupled with the strong FFB production growth, management expects to see CPO production cost to improve to RM2,700/mt for FY23. On the foreign worker shortage issue, the Group is currently experiencing harvester shortage of up to 10% of workforce and it had submitted 90 applications for the recruitment of foreign workers from Indonesia. It is worth noting that the Group is currently developing harvesting machines to increase its coverage of harvesters from 1:25ha to 1:50ha. This will significantly help reduce its dependency on harvesters by half while productivity can double to 50mt-100mt for each harvester in every month. The Group has developed 2 units and planned to increase to 10 years in 2023. On the CPO price outlook, management targets RM4,300/mt for 2023. Management has also allocated capex of RM50m for FY23, with RM30m allocating for replanting and upkeep for immature area.

Source: PublicInvest Research - 30 Nov 2022