Overview. SPLB’s core PBT came in higher yoy to RM39.2m vs. RM22.9m in 3Q20 mainly due to higher ASP realised for CPO and PK despite of lower productions and sales volume of CPO and PK as well as higher production cost and operating cost amounting to RM220m vs. RM150m in 3Q20. On quarterly basis, the 21% increase in core profit was attributed by a higher ASP realized of CPO as well as higher production and sales volume despite registered lower ASP of PK and higher production costs and operating cost during the period. CPO and PK sales volume increased substantially by 8.9% and 12.5% respectively to 39,002 tonnes and 8,681 tonnes in 3Q21 from 35,827 tonnes and 7,719 tonnes registered in 2Q21.

Against estimates: Above. SPLB’s 9M21 core PBT was above our estimates. Revenue and core PBT increased 64% and 95% respectively to RM546.9m and RM91.4m as higher ASP realised of CPO and PK is more than enough to offset the decline in production and sales volume of CPO and PK as well as the rise in production cost and operating cost.

Outlook. We believe earnings performance would be sustainable, in view of 1) its harvestable areas and crops profile has improved, and 2) any earnings downside would be mitigated by the higher CPO prices which are currently trading above RM4,000/MT – given its spot sales strategy has widened its ability to ride on rising spot price.

Our call: BUY. Given the encouraging results, we revised our FY21 and FY22 earnings forecast higher to RM97.8m and RM72.3m respectively from RM79.8m/RM67.5m previously as we adjusted our production, ASP of palm products, costs and margins assumptions. We revised higher our ASP forecast for CPO to RM4,200/MT for FY21 and RM3,500/MT for FY22 from RM4,050/MT and RM3,000/MT previously; whilst cut our production number by 8% to 321k and 360km tonnes respectively for FY21/22 to be more reflective to our current and future expectations. Upgrade to BUY with new Target Price of RM2.88 vs. RM2.64 previously based on P/B of 1.2x and BV/share of RM2.40.

Source: BIMB Securities Research - 22 Nov 2021