• Overview. Sarawak Plantations’ (SPLB) 1Q21 core PBT increased 96% yoy to RM19.8m as higher ASP realised for CPO and PK were more than offset by a 0.2% and 4.1% declined in CPO and PK sales volume to 30.9k tonnes and 6.3k tonnes respectively. Conversely, the 47% increase in revenue of RM145.5m against RM98.9m in 1Q20, negated the higher cost incurred in production and operating cost amounting to RM126.3m (+41.95% yoy). On quarterly basis, a tad decline in profit was attributed by a lower productions and sales volume of CPO and PK despite a higher realized ASP of CPO and PK as well as higher cost of sales and distribution expenses during the period (Table 2).
   
• Against estimates: Inline. SPLB’s 1QFY21 core PBT was within our estimates, making up 20% of our full year forecast.

• Key highlights. SPLB’s 1Q21 revenue increase 47%/10% yoy/qoq to RM145.5m mainly supported by higher ASP realised CPO and PK that were more than offset by an increase in production cost and operating cost especially in FFB purchase. ASP realised for CPO and PK increased 44%/20% and 49%/26% respectively to RM3,819/MT and RM2,375/MT (Table 2).

• Dividend. The Board has declared an interim DPS of 5sen (1Q20: 5sen) for FY21. At current market price, this would translate into DY of 2.1%.

• Outlook. We believe earnings performance would be sustained, in view of 1) its harvestable areas and crops profile has improved, hence will generate better yield and production growth, and 2) any earnings downside would be mitigated by the higher CPO price anticipated which are currently trading above RM4,000/MT. Off note, about 700ha has been considered as normalised as at end April, 2021 - bring the remaining area to be normalise YTD of c. 2,035ha (end 2020: 2,735ha).

• Our call. Maintain earnings forecast with unchanged TP of RM2.64 based on P/B of 1.1x and BV/share of RM2.40. We now see the stock reaching closer to our valuation with an upside of 8.6% from the current price. Hence, we changed our recommendation from BUY to HOLD.

Source: BIMB Securities Research - 21 May 2021