• Overview. Sarawak Plantations’ (SPLB) 2Q20 core PBT increased more than 100% yoy to RM13.8m as revenue rose 29% to RM97.4m on higher sales volume and ASP realised for CPO and PK. On qoq basis, core PBT improved 36% as higher sales volume of CPO and PK, and lower cost of sales negated the lower ASP realised for CPO and PK.

• Key highlights. During the period, SPLB recorded a gain from changes in FV of biological assets of RM11.9m as opposed to RM1.5m in 2Q19 and a loss of RM1.8m in 1Q20. Management guided that higher expenses in Q2 were mainly due to RM1m donation to Sarawak State Government for Covid-19.

• Against estimates: Above. 1H20 core earnings were above our and consensus’ estimates. Sales volume of CPO and PK increased 5% and 8% yoy respectively to 65.5k tonnes and 13.8k tonnes with ASP of CPO and PK realised improved 26% and 32% respectively to RM2,479/MT and RM1,417/MT.

• Outlook. We are positive that SPLB is on track to increase its productivity and to reduce unit cost of production. According to management, out of 4,200ha of enhancement area identified in 2018, about 2,900ha has been normalised (2Q20: about 400ha) as at 30 June 2020 to boost FFB production. As such, FFB yield has improved to 7.87MT/ha in 1H20 from 6.96MT/ha in 1H19.

• BUY call maintain. In view of improved sales volume and better palm products price anticipated in the coming quarter, we revised FY20/FY21 earnings forecast higher to RM36.2m/RM43.5m respectively from RM25.7m/RM37.1m previously – to reflect our adjustment on cost and ASP of CPO and PK. We changed our TP to RM1.94 (RM1.75 previously), based on average 3-yrs P/B of 0.9x and FY21 BV/share of RM2.16.

Source: BIMB Securities Research - 19 Aug 2020