• Sarawak Plantation (SPB) reported a core loss of RM1.7m in 1H18, as revenue dropped 28% to RM137.9m due to lower ASP and lower sales volume of CPO and PK. Overall, it came in below our expectation

• On quarterly basis, core profit improved to register a profit of RM2.1m vs. a loss of RM3.8m in 1Q18 helped by lower estates and mill costs.

• We revised our earnings forecast lower for FY18 and FY19 to RM1.3m and RM8.8m respectively from RM5.6m and RM13.9m previously with a revised TP of RM1.41 (RM1.52 previously). Downgrade to SELL recommendation.

Earnings below expectation.

SPB’s 1H18 PATAMI of RM658k is way below our forecast. The company recorded a profit before tax of RM3.8m against RM19.1m in 1H17 as a result of lower ASP realised for CPO and PK as well as lower production and sales volume for both CPO and PK. The disappointing results was also aided by higher estates and mill operations costs incurred during the financial period – compounded by higher effective tax rate.

Lower operations costs qoq

On quarterly basis, SPB recorded a PATAMI of RM2.4m as compared to a loss of RM1.7m in 1Q18 mainly attributed to lower cost of sales as well as higher production and sale volume of CPO and PK. The lower cost of sales was a result of lower estates and mill operations costs of RM22.9m (-31% qoq) and RM56.7m (-9% qoq) respectively during the period that ended-up with higher oil palm operations gain of RM14.0m vs. of RM4.5m in 1Q18. On the other hand, the yoy results was still way below last year’s figure (Table 1) due to the effect of lower ASP realised and lower sale volumes for CPO and PK; compounded by 10% higher in oil palm operations costs of RM72.5m vs. RM65.8m in 2Q17.

Change in earnings forecast.

We revised our earnings forecast for FY18 and FY19 lower to RM1.3m and RM8.8m respectively from RM5.6m and RM13.9m, as we adjusted our production, costs and ASP of palm products lower.

Valuation and recommendation.

We peg a target price of RM1.41 (RM1.52 previously) and downgrade our recommendation to SELL for SPB. Our target price is based on SPB’s 2-yrs average low P/BV of 0.72x and FY17 BV/share of RM1.96.

Source: BIMB Securities Research - 17 Aug 2018