• Sarawak Plantation (SPB) 1Q19 PATAMI increased more than 100% yoy mainly on higher sales volume of CPO and PK as well as lower cost of sales.

• However lower realized ASP of palm product prices during the quarter partially negated the increase in earnings.

• Overall, the results were slightly below our expectation.

• Declared a first interim dividend of 5sen payable on 8 August 2019.

• We revised our FY19 earnings forecast to RM23.5m from RM25.6m previously as we adjust our margins lower on assumption of higher cost pressure moving forward. Maintain HOLD with unchanged TP of RM1.65.

Dragged by lower ASP

Overall, SPB’s earnings was slightly below our forecast. The Group recorded a PBT of RM7.5m (+>100% yoy) in 1Q19, on account of higher sales volume of CPO and PK, aided by lower cost of sales during the period. Nonetheless, revenue of oil palm operations fell by RM1.5m to RM69.4m in 1Q19 on account of lower ASP realised of CPO and PK (refer Table).

Improved qoq earnings.

The Group recorded a PBT of RM7.5m vs. a loss of RM0.5m in 4Q18 on account of lower cost of sales and gain from FV changes in biological assets of RM2m vs. a loss of RM5.1m recognised in 4Q18. SPB’s earnings could be even better if not for lower sales volume of CPO and PK as well as ASP of PK during the quarter. Sales volume of CPO and PK decreased by 26.3% and 25% respectively to 29,352 tonnes and 6,334 tonnes, whereas the ASP of PK dropped 15% qoq to RM1,142/MT from RM1,350/MT in 4Q18.

Declared 5sen dividend

The board has declared a first interim dividend of 5sen/share in FY19 (FY18: 5sen), payable on 8 August 2019. At current market price this would translate into DY of 3.2%.

Valuation and recommendation.

Given our new assumption of higher cost pressure moving forward, we revised our FY19 earning forecast lower to RM23.5m from RM25.6m previously. Nonetheless, we maintain our target price of RM1.65 for SPB based on P/BV of 0.85x and BV/share of RM1.95. The higher P/BV multiple is to reflect its operational efficiency and promising long-term earnings growth potential. Maintain HOLD recommendation.

Source: BIMB Securities Research - 21 May 2019