Excluding i) PPE written off (RM0.2m), ii) net realized FX gain (RM1.7m) and minority interests, the group kick started 1QFY24 with steady core earnings of RM36.1m, making up 16.5% and 17.7% of our and the consensus full-year expectations. Despite the lower-than-expected results, we expect to see a strong catch-up in the subsequent quarters led by a stronger recovery in FFB production. Maintain Outperform call with a new SOP-based TP of RM4.90 after rolling over our valuation to FY25. A first DPS of 15sen was declared for the quarter (vs 1QFY23: 10sen).

• Marginal gain in 1QFY24 sales. Sales were marginally higher at RM352.4m, supported by higher palm oil revenue (+3.2%) despite a decline in timber sales (-10.1%). 1QFY24 average CPO selling price retreated from RM3,890/mt to RM3,884/mt while 1QFY24 FFB production marginally declined to 127,174mt. 1QFY24 OER stood at 19.67% (vs 1QFY23: 19.27%). 
  
  Timber sales slipped to RM59.8m as log sales tumbled 40.1% YoY to RM16.1m while plywood sales rose 26.5% YoY to RM43.8m. 1QFY24 average log export price slipped 20% YoY to USD223/cu m while plywood price sank from USD649/cu m to USD530/cu m.Log export volume dipped 34.4% YoY to 14,514 cu m while plywood exports volume surged 35.8% YoY to 14,514 cu m.

• 1QFY24 core earnings were flattish. The steady core earnings of RM36.9m were underpinned by stronger palm oil earnings (+35.2%), partially offset by as slump in timber earnings (-73.4%). 1QFY24 all-in CPO production cost stood at RM2,000/mt (PK-credit: RM300/mt). Timber earnings shrank from RM16.9m to RM4.5m, as log earnings saw a steep decline from RM12.7m to RM2m while log earnings fell 19% YoY to RM2.5m. Earnings contributions from 29.5%-owned Sarawak Plantation and JV-owned refinery improved from RM5m to RM6.6m.

• Outlook. Following the weaker-than-expected FFB production in the 1Q, management sees downside risk to its FFB production growth target of 770k mt while we have a more conservative assumption 713k mt. Muriate of Potash has softened from 4QFY23’s RM1,600/mt to RM1,500/mt while compound remained at RM1,600/mt. It plans to replant 2,000ha and another 500ha for new planting under the JV with state government. All-in average CPO production cost is expected to remain at RM2,050/mt (PKcredit: RM350/mt). It has lowered its log production from 290,000 cu m to 270,000 cu m, with 81% coming from natural log supplies. Log exports sales volume is expected to remain flattish while plywood sales volum e is expected to rise by 26% YoY. Based on the sensitivity analysis, its PAT will fluctuate by RM12m for every RM100/mt change in CPO price movement. Lastly, it has allocated capex of RM64m with 11m allocating for timber segment RM43m for plantation segment (for PPE and replanting) and remaining RM10m for palm oil mill upgrade.

Source: PublicInvest Research - 28 May 2024