Stripping out i) the gain on fair value of biological assets (RM7.3m), ii) gain on disposal of PPE (RM1.4m) and iii) minority interests (RM0.4m), Sarawak Plantation registered core earnings of RM47m for 9MFY23, down by 45.7% YoY. Nevertheless, the weaker results were in line with our and the street fullyear expectations, making up 79% and 78%, respectively. Maintain Neutral with an unchanged TP of RM2.16. A 2nd DPS of 5sen was declared for the quarter, bringing the cumulative DPS to 10sen (vs 9MFY22: 15sen).

• 3QFY23 revenue (QoQ: +35.6%, YoY: +6.7%). The Group’s sales climbed 6.7% YoY to RM172.6m, attributed to higher CPO production. 3QFY23 FFB production fell 3.3% YoY to 95,569mt (9MFY23: 228,149mt), while third party purchase production totaled 116,783mt (9MFY23: 255,859mt). 3QFY23 average realised CPO price retreated from RM4,186/mt to RM3,759/mt while average realized palm kernel price fell from RM2,286/mt to RM1,924/mt. 3QFY23 FFB yield slipped from 3QFY22’s 4.92mt/ha to 4.79mt/ha while OER enhanced from 19.36% to 19.93% (9MFY23: 20.15%), underpinned by better quality control on the FFB input and higher milling efficiency following an upgrade last year.

• 3QFY23 core earnings jumped 30% YoY to RM25.9m. Excluding the change in fair value of biological assets (RM7.3m) and gain on disposal of right-of-use assets (RM1.4m), the group’s core earnings surged 30% YoY to RM25.9m, mainly led by higher plantation earnings margin. 3QFY23 allin CPO production cost inclusive of depreciation, windfall tax & sales tax and PK credit) tanked from 3QFY22’s RM3,200/mt to RM2,220/mt (all-in cash cost: RM1,900/mt), attributed to a i) sharp decline in fertilizer costs, ii) a drop in manuring and milling costs as well as iii) lower administrative costs.

• Outlook guidance. Despite seeing a flattish growth this year, management has set an aggressive FFB production target of 400,000mt for 2024, an increase of 20% YoY, led by favourable age profile. For 2024, It plans to replant 4,000ha, which requires about 600,000 seedlings (150 trees/ha). The estimated new mature area is 1,600ha, raising the harvestable area from 19,500ha to 21,500ha in 2024. Management has also set a FFB yield target of 18.7mt/ha with CPO price forecast of RM4,200/mt. On the production cost outlook, it expects cash cost of RM2,000/mt for FY23 and FY24 while all-in production cost is expected to drop from RM2,500/mt to RM2,300/mt due to an increase in both FFB yield and PK credit. It successfully rehabilitated 230ha enhancement area with an outstanding of 120ha. Encumbered area currently stands at 2,400ha and the negotiation process with the locals is still ongoing. Fertiliser application is estimated to reach 75% this year with fertilizer costs (MOP and compound) dropping more than 33% YoY. Lastly, it has allocated capex of RM74m for 2024 with RM50m spending on replanting and maintenance and remaining RM24m for other expenditure.

Source: PublicInvest Research - 28 Nov 2023