• Overview. Sarawak Plantations’ (SPLB) 3Q20 core PBT increased more than 100% yoy to RM22.9m as revenue rose 47% to RM137.2m on higher sales volume and ASP realised for CPO and PK. On quarterly basis, core PBT improved 66% as higher sales volume and price of CPO and PK, negated the higher cost incurred in FFB purchases, estates upkeep and mill maintenance costs amounting to RM142.6m (+42% qoq). The difference between reported PBT and core PBT being change in FV gain/loss of biological assets amounting to RM4.25m (2Q20: RM11.9m; 3Q19: FV loss of RM0.7m; 9M20: 14.4m; 9M19: RM2.9m).

• Against estimates: Above. 9M20 core earnings were above our and consensus’ estimates. Sales volume of CPO and PK increased 6% and 10% yoy respectively to 107.3k tonnes and 23.1k tonnes with ASP of CPO and PK realised improved 29% and 32% respectively to RM2,558/MT and RM1,412/MT (Table 2).

• Dividend. The board has declared a second interim DPS of 5sen, which brings total DPS to-date FY20 at 10sen/share (FY19: 5sen). At current market price, this would translate into DY of 4.7%.

• Outlook. SPLB is highly exposed to the movement in palm oil prices as it is a pure plantation company and thus, earnings are highly correlated to ASP of palm product and production. We believe earnings performance would be sustained in the next few quarters, in view of higher price anticipated and improved production and sales volume. For the nine-month period, FFB yield has improved to 13.21MT/ha from 11.86MT/ha recorded in the same period last year.

• BUY call maintain. We revised FY20/FY21 earnings forecast higher to RM58.9m/RM61.2m respectively from RM36.2m/RM43.5m previously – to reflect our adjustment on cost and ASP of CPO (FY20/FY21: +8.3%) and PK (FY20/FY21: +8%). We changed higher our Target Price to RM2.38 (RM1.94 previously), based on average 3-yrs P/B of 1.1x and FY21 BV/share of RM2.16.

Source: BIMB Securities Research - 23 Nov 2020