• Overall, the recently concluded 4Q21 earnings seasons was remarkable with 8 out of 10 companies under our coverage beating our forecast.

• We retain our view that plantations’ segment margins would sustain in the upcoming results seasons, given higher ASP of palm products would more than enough to compensate for lower production and increase in operating costs.

• Maintain OVERWEIGHT given earnings growth estimated to remain firmly on the upside as CPO price is anticipated to trade above RM6,000/MT in the short-to-medium term before moderating in the later part of 2Q2022. We have revised average CPO price forecast to RM4,500/MT (RM3,500/MT previously) for 2022 and RM3,500/MT (RM2,900/MT previously) for 2023.

Remarkable performance for 4Q2021

The recently concluded corporate earnings season was remarkable for plantation companies as eight out of ten stocks under our coverage reported earnings that were above expectations, with two coming in within our expectation. Earnings were generally higher yoy as improvement in ASP of palm products realised negated the decline in production and, increase in production and operational costs - except for IOI, KLK, FGV and Sarawak Plant which recorded a higher yoy growth in FFB and CPO productions during the period. Expansion in margins and profit contribution from downstream manufacturing segment, especially from oleochemical division aided to the better results for KLK and IOI. As for SDPL, a record profit from downstream segments was mainly attributed to improved sales volume in European operations and higher margins from its Asia Pacific bulk operations. The ASP realised of CPO for companies under our coverage improved significantly to RM4,007/MT – RM5,468/MT against RM2,589/MT – RM3,235/MT in 4Q20 and RM3,502/MT – RM4,490/MT in 3Q21.

Conversely, the improvement in qoq results was generally due to better ASP realised for CPO and PK as well as higher PK sales volumes during the period; aided by higher profit contribution from oleochemical sub-segment (IOI and KLK). Almost all of the companies in our stock universe suffered a hiccup in FFB production except for IOI, KLK and HAPL which turned out to be positive qoq (Table 2). As for other companies, lower FFB production were mainly due to lower crops as production is on low cycle of production months, compounded by flooding in some states in Malaysia which is within crops growing areas that disrupted the harvesting and logistics of PO. Malaysian estates are still lagging as productivity is wedged by the lag impact of weaker yield from the dry weather experienced in 2019 and lower fertiliser application as well as hiccup in productivity due to labour shortage issues and replanting activities. This was also added with some of the estates in Indonesia that was impacted by flood that disrupted harvesting activities in the country.

Source: BIMB Securities Research - 3 Mar 2022