• Sarawak Plantation (SPB) 3Q18 PATAMI more than tripled to RM9.3m qoq helped by higher sales volumes and ASP of PK price.

• However, for the cumulative 9M18 period, SPB reported a 57% drop in PATAMI to RM10m, as revenue fell 26% to RM221.5m on lower ASP and lower sales volume of CPO and PK.

• Overall, the results came in above our expectation.

• We tweaked our earnings forecast for FY18 and FY19 to RM8.7m and RM7.0m respectively from RM1.3m and RM8.8m previously with an unchanged TP of RM1.41.

• Maintain SELL recommendation.

Earnings above expectation.

Overall, SPB’s 3Q18 and 9M18 earnings came-in above our forecast. On quarterly basis, SPB PATAMI more than tripled to RM9.3m as compared to RM2.4m in 2Q18, mainly attributed to higher production and sale volume of CPO and PK aided by higher ASP realised of PK. The sales volume of CPO and PK increased 35% and 8% respectively to 31,865 tonnes and 5,762 tonnes. Estates operations recorded a revenue and segment profit of RMRM27.9m and RM13.1m respectively vs. RM22.5m and RM6.7m recorded in 2Q18. Mill operations segment profit increased 33% to RM4.7m on the back of a 23% rise in revenue to RM78.5m.

Lower production, sales volumes and ASP for cumulative 9-mth period.

SPB recorded a lower profit before tax of RM16.2m against RM31.5m in 9M17 as a result of lower ASP realised for CPO and PK, as well as lower production and sales volume for both CPO and PK. Revenue of the oil palm operations declined to RM220.8m vs. 298.3m in 9M17 attributed by 18.5% and 24.4% decline in CPO and PK price as well as 9% and 12% dropped in CPO and PK sales volumes during the period. (Table 2).

Change in earnings forecast.

Given the encouraging 3Q18 performance, we revised our earnings forecast for FY18 and FY19 to RM8.7m and RM7.0m respectively from RM1.3m and RM8.8m, as we tweaked our production, costs and ASP of palm products.

Valuation and recommendation.

We maintain our target price of RM1.41 and SELL recommendation 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 - 22 Nov 2018