• Sarawak Plantation (SPB) reported a net loss of RM1.7m in 1Q18, which has derailed from our forecast as margin was squeezed by lower ASP and lower volumes of CPO and PK.

• The board has declared a first interim dividend of 5sen for financial year ended Dec 2018, payable on 11 June 2018.

• We revised our earnings forecast lower for FY18 and FY19 to RM21.1m and RM25.4m respectively from RM 32.7m and RM37.3m previously with a revised TP of RM1.48 (RM1.64 previously). Downgrade to SELL recommendation.

Lower ASP of CPO and PK.

SPB recorded a loss before tax of RM1.6m against a profit of RM13.3m in 1Q17 and a loss of RM17.7m in 4Q17. The disappointing result was due to the effect of lower ASP realised of CPO and PK as well as lower production and sales volume for both CPO and PK. This was also aided by higher estate costs incurred during the financial period.

Earnings impacted by higher estate costs

SPB’s 1Q18 could be better, if not for higher estates costs of RM22.9m during the period that ended-up with estate operations loss of RM1.3m on the back of revenue of RM21.6m. On the other hand, mill operations recorded a revenue and profit of RM68.4m and RM2m respectively.

Declared 5sen dividend

The board has declared a first interim, single tier dividend of 5sen/share for FY18, payable on 11 June 2018. At current market price, this would translate into DY of 3.0%.

Change in earnings forecast.

On top of the adjustment made for MRFS 141 and 116, we revised our earnings forecast for FY18 and FY19 lower by 35% and 32% respectively to RM21.1m and RM25.4m, as we also adjusted our production, costs and ASP of palm products lower. Of note, with Ta Ann becoming its largest shareholder, we look forward to see earnings growth in the company through better estates management practise to improve yield and to deal with NCR land issues.

Valuation and recommendation.

We peg a target price of RM1.48 (RM1.64 previously) and downgrade our recommendation to SELL for SPB. Our target price is based on SPB’s 5-yrs average PER of 19.6x and FY18 EPS.

Source: BIMB Securities Research - 16 May 2018