• Overview. Sarawak Plantations’ (SPLB) 1Q22 core profit increased by more than 100% yoy to RM25.7m as higher ASP realised for CPO and PK were more than offset by a 21.6% and 16.9% decline in CPO and PK sales volume. Conversely, the 26% increase in revenue of RM183.9m against RM145.5m in 1Q22, negated the higher cost incurred in the cost of sales and distribution expenses amounting to RM141.5m (+15.7% yoy). On a qoq basis, a decline in profit was attributed to lower revenue as a result of lower productions and sales volume of CPO and PK despite a higher realized ASP of CPO and PK during the period.

• Against estimates: Above. SPLB’s 1Q21 core net profit was above our estimates, making up 47% of our full-year forecast.

• Key highlights. Given that SPLB is a pure planter, the growth in profit was contributed by improvements in palm products’ margins in tandem with strong CPO prices realised. However, the qoq performance is partly negated by the 12.6% increase in estates and mill operations costs of RM128m resulting from the lower FFB and CPO production by 27% and 36% respectively (Table 2), and the windfall tax paid c. RM4.8m (1Q21: RM900k) based on higher CPO recorded during the period.

• Dividend. The Board has declared an interim DPS of 5sen (1Q21: 5sen) for FY22. At the current market price, this would translate into a DY of 7.4%.

• Outlook. We believe earnings performance would be sustained on higher CPO price realised which is currently trading above RM5,000/MT. Off note, about 67ha has been considered as normalised for the 1Q22 - bringing the remaining area to normalise YTD of c. 1,018ha (1 st Jan 2022: 1,085ha).

• Our call: Given the group’s encouraging results, we revised our FY22 earnings forecast higher to RM122.5m from RM91.2m previously as we adjusted our production, ASP of palm products, margins and costs assumptions. Maintain a BUY with a TP of RM3.64 based on P/BV of 1.4x and BV/share of RM2.60.

Source: BIMB Securities Research - 23 May 2022