• We reaffirm our positive view on SPLB amid earnings that will be driven by organic growth and transformation plan.

• Given that SPLB is a pure planter, it stands to reap the benefits from higher palm products prices and improvement in FFB production.

• We reiterate our BUY recommendation with a TP of RM2.85, pegged at 1.0x P/B to FY23F’s BV/share of RM2.85.

Leverage on Higher ASP of Palm Products

Given that SPLB is a pure planter, the growth in 1Q22 core profit (+>100% to RM25.7m) was lifted by the improvement in palm products’ margins in tandem with higher CPO and PK prices realised. Nonetheless, its QoQ performance was partly dented by a jump in estate and mill operations and windfall tax paid during the period.

Earnings Outlook Remains Promising

SPLB is set to get a boost in earnings, estimated to grow at a 3-year CAGR of 11.9% on the back of a 15.9% increase in revenue; to be supported by improvements in production, average selling price (ASP) of palm products and cost savings. Central to our forecast is the expected improvement in production resulting from the increase in harvestable areas and FFB yield, to be aided by better palm product prices. Of note, about 67ha of landbank has been normalised in 1Q22 - bringing the remaining area to be normalised YTD to c.1,018ha (1st Jan 2022: 1,085ha).

Continuous Focus on Operational Efficiency Plan.

SPLB is now a much organised and efficient company following the entry of Ta Ann as shareholder in 2018. The company has since undertaken several transformation initiatives at all levels, both organisational and operational. It has transformed into a superior company post-FY20 and this will be supportive of earnings in view of, 1) improvement in harvestable areas and crops profile and 2) rising spot price of CPO given its spot sales strategy that able to ride on rising spot price. Any earnings risks on lower production and sales volume would be mitigated by higher CPO prices which is expected to average at RM5,000/MT this year. As SPLB’s earnings are sensitive to fluctuations in CPO prices, we estimate that for every RM100/MT change in CPO price would translates into +/- 6% change in PBT, ceteris paribus.

Stable Dividend Pay-out Expected

Despite the absence of official dividend policy, in the past 4 years, SPLB has consistently sustained a dividend payout ratio of over 40% of PATAMI. While its FY21 dividend payout came at a steady 44% PATAMI or equivalent to 20sen per share, we anticipate SPLB to continue paying dividends of 10sen-20sen per share over FY22F-FY23F (based on 33%-46% payout assumption) period. This implies a yield of 8.7%-4.3% based on current price.

Reasserting BUY at new TP of RM2.85

Maintain our BUY call on SPLB with a new TP of RM2.85 based on P/B of 1.0x (historical 2-yrs avg.) and BV/share of RM2.85 as we roll forward our valuation and apply a lower historical 2-years average P/B given the expected moderation of CPO prices in 3Q22 onwards.

Source: BIMB Securities Research - 1 Jul 2022