• We reaffirm our positive view on SPLB with earnings estimated to grow at a robust CAGR of 47% over the next 3 financial years, supported by organic growth and its transformation plan.

• SPLB stands to reap benefits from acceleration in higher palm products price and improvement in FFB production.

• We reiterate our BUY recommendation with higher Target Price of RM2.64 from RM2.50 previously, based on P/B of 1.1x and BV/share of RM2.40. The valuation is more reflective of SPLB’s future potential, and fully justified in our view, as earnings are lifted significantly by improvement in FFB yield and better CPO price anticipated.

A new SPLB has emerged following Ta Ann acquisition

SPLB is now a much organised and efficient company, in our opinion, following the entry of Ta Ann as shareholder in 2018. We believe that SPLB is transforming into superior company post-FY20 as we believe 1) its harvestable areas and crop profile has improved, hence will generate better yield and production growth, and 2) higher FFB, PK and CPO production will partially offset any potential downward-swing of palm products price.

SPLB is on a growth trajectory

We foresee that SPLB is on its way to boost its earnings, estimated to grow at 3-year CAGR of 47.3% on the back of 12.7% increase in revenue; supported by higher production, ASP of palm products and costs savings. Central to our forecast is improvement in production resulting from increase in harvestable areas and FFB yield, aided by better palm product prices.

SPLB is a pure upstream plantation company

SPLB’s earnings is highly exposed to weakness/strength in palm products price as it is a pure planter with single area (Sarawak) exposure. As SPLB’s earnings are sensitive to fluctuations in CPO price, we estimate that for every RM100/MT change in CPO price would translates into +/- RM4.2m change in profit before tax.

Reasserting BUY at a TP of RM2.64

Maintain our BUY call on the stock with higher TP of RM2.64 from RM2.50 previously, based on P/B of 1.1x and BV/share of RM2.40. Our high-conviction recommendation is based on its earnings improvement – despite negativity surrounding the industry on ESG issues – plus encouraging revenue and earnings drivers as we see two immediateterm earnings catalyst namely, 1) higher palm products price and, 2) significant improvement in FFB production. We believe the stock is still undervalued given its current valuation is below its 3-yrs average forward PER of 22.8x and trading near -1SD below 3-yrs mean of 8.5x.

Source: BIMB Securities Research - 5 Apr 2021