Stripping out the loss on fair value of biological assets of RM4.3m, Sarawak Plantation registered core earnings of RM69.2m for FY23, down 33.8% YoY. Nevertheless, the results beat our and the street full-year expectations, making up 117.4% and 111.4%, respectively. The better-than-expected results were mainly attributed to a sharp decline in both distribution and administrative expenses. We raise our earnings forecasts for FY24-26F by about 25% to reflect the strong production target set by the management. Upgrade to Outperform with a higher TP of RM2.71. No dividend was declared for the final quarter.

• 4QFY23 revenue (QoQ: -7.8%, YoY: +0.7%). The group’s sales were marginally higher at RM159m, as weaker CPO prices were offset by improved FFB production. 4QFY23 FFB production rose 2.1% YoY to 90,625mt (FY23: 318,774mt), while third party purchase production totaled 104,247mt (FY23: 360,106mt). 4QFY23 average realised CPO price contracted from RM3,861/mt to RM3,632/mt while average realized palm kernel price fell from RM1,945/mt to RM1,868/mt. 4QFY23 FFB yield stood at 4.52mt/ha (FY23: 16.34mt/ha) while OER improved to 19.93% (FY23: 20.08%), led by better quality control on the FFB input and higher milling efficiency following an upgrade last year.

• 4QFY23 core earnings rose 16.7% YoY to RM20.4m. Excluding the loss on fair value of biological assets (RM4.3m), the group’s core earnings climbed from RM17.5m to RM20.4m, mainly led by improved plantation earnings and lower tax charges. 4QFY23 all-in CPO production cost inclusive of depreciation, windfall tax & sales tax and PK credit softened from 4QFY22’s RM2,930/mt to RM2,600/mt (all-in cash cost: RM2,100/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. For FY23, production cost fell from RM2,700/mt to RM2,600/mt.

• Outlook guidance. Management has targeted FFB production of 400k mt for 2024, an increase of 25% YoY, led by additional mature area of 1,100ha in 2023 and another 1,600ha in 2024. It plans to replant 4,000ha, which requires about 600k seedlings (150 trees/ha). Its nursery has about 900k seedlings with 200k seedlings above 12 months old. Harvestable area stands at 21,500ha (harvestable: 20k ha+ enhancement: 400ha+ 1,100ha new mature area) while immature area stands at 4,200ha. It also successfully recovered 500ha encumbered area in 2023 with the remaining 2,200ha to be recovered over the next 4 years. It managed to rehabilitate 500ha enhancement area with an outstanding of 400ha. Management has set a FFB yield target of 18.7mt/ha with CPO price forecast of RM4,200/mt. On the production cost outlook, it expects to see a lower cost of RM2,300/mt due to an increase in FFB yield and softer fertilizer costs. Fertiliser application reached 90% last year with fertilizer costs (MOP and compound) dropping 38% YoY and 32% YoY, respectively. Lastly, it has allocated capex of RM80m for 2024 with RM50m on replanting & maintenance and remaining RM25m for mill improvement and facilities.

Source: PublicInvest Research - 27 Feb 2024