• Overview. 4Q19 core PBT increased more than 100% yoy to RM8.9m as revenue rose 22% to RM108.9m on higher ASP realised of CPO and sales volume of PK. On qoq basis, core PBT improved 7% on higher sales volume of PK and higher ASP realised of CPO and PK.

• Key highlights. In FY19, in addition to on-going recovery of encumbered area in Mukah (1,300ha), SPB are also in progress to normalise 4,156ha of enhancement area identified in 2018. So far, c. 1,350ha is already normalised, hence, expanding the harvestable area to 17,508ha.

• Against estimates: In-line. FY19 earnings was within our estimates. The increase in FY19’s core PBT of RM23.7m was principally due to higher sales volume of CPO and PK, despite lower ASP realised of CPO and PK. Sales volume of CPO and PK increased 17% and 18% respectively to 139.3k tonnes and 29.6k tonnes whilst ASP of CPO and PK realised decreased 2% and 30% respectively to RM2,087/MT and RM1,146/MT.

• Outlook. We believe earnings growth would be driven by rise in production and improvement in palm oil prices. Growth in production is expected to come from a recovery in palm yield and an increase in new areas entering maturity and higher yielding age brackets. As of 12- month period, FFB yield per harvestable hectare has improved to 15.98MT/ha from 15.22MT/ha in FY18. This will be supported through better estates management practise to increase productivity and to reduce unit cost of production.

• Our call. Maintain TP of RM2.05 based on average 5-yrs BV/share of RM2.05 and target P/BV of 1.0x. SPB’s share price has fallen by 16.7% YTD and we now see value emerging in the stock with an upside of 17% from current price. Upgrade to BUY.

Source: BIMB Securities Research - 19 Feb 2020