• Sarawak Plantation (SPB) 4Q18 core PATAMI was three time lower than 3Q18’s earnings to RM3.2m qoq on account of higher cost of sales and lower ASP of CPO and PK.

• For the cumulative 12-mth period, SPB reported a 65% drop in core PATAMI to RM11.1m, as revenue fell 22% to RM310.8m on lower sales volume of PK and lower ASP realized of CPO and PK.

• Overall, the results were above our expectation.

• Our earnings are currently under review pending updates from management. Similarly, we put our call and TP on the stock as under review.

Dragged by lower ASP realized of CPO and PK

Overall, SPB’s earnings was above our forecast. The Group recorded a 14% increase in PBT of RM15.8m in FY18, although revenue dropped 22% to RM310.8m mainly due to 1) reversal of impairment on PPE and bearer plants of RM1.9m and RM1.2m against impairment loss of RM12.9m in FY17, and 2) lower loss in FV changes of biological assets of RM2.7m as compared to a loss of RM12.5m in FY17. Adjusted for the FV changes and impairment, core PATAMI slipped 65% yoy to RM11.1m. The operating profit before tax was RM18.9m vs. RM41.9m recorded in FY17, was actually in-line with the decrease in revenue. The revenue of oil palm operations fell by RM88.3m to RM309.9m in FY18 vs. RM398.2m in FY17 on account of lower ASP realised of CPO and PK, and lower sales volume of PK (refer Table).

Lower qoq and yoy earnings.

Adjusted for FV changes and impairment, SPB core PATAMI dropped 66% qoq and 50% yoy to RM3.2m on account of higher cost of sales and lower ASP realised of CPO and PK. The fall in earnings was after taking into account the 1) reversal of impairment of PPE and bearer plants of RM1.9m and RM1.2m recognised in 4Q18 as opposed to impairment losses of RM12.9m on PPE and bearer plants in 4Q17, and 2) loss arising from FV changes of biological assets of RM5.1m in 4Q18 vs. a loss of RM10.3m in 4Q17.

Valuation and recommendation.

Our earnings forecast and target price are currently under review pending updates from management.

Source: BIMB Securities Research - 21 Feb 2019