• Maintain HOLD (TP: RM2.16) Sarawak Plantations (SPLB)'s 9M23 PATAMI of RM55.7mn (-39 YoY%) exceeded both our and consensus expectations. Excluding the effects of fair value changes in biological assets, SPLB reported a core net profit of RM48.4mn (-44% YoY). SPLB declared a 2nd interim DPS of 5.0sen, bringing the total dividend declared (DPS) to-date of 10.0sen vs. 15.0sen in 9M22. This is equivalent to 4.7% yield at the current price. The deviation from our projection was mainly due to lower forecast of CPO production that we made for FY23. In light of these results, we have adjusted our FY23/FY24 earnings forecasts higher to RM62.9mn/RM50mn, respectively, from RM43.9mn/RM40.5mn previously, as we adjusted our CPO production forecast to 117k tonnes (+9% YoY). Despite this, we believe that any potential earnings downside will be mitigated by improvements in production and higher sales volume of CPO and PK. Maintain a HOLD call with new TP of RM2.16 versus RM2.03 previously; based on historical low 3-yrs avg. P/BV of 0.77x and FY24/25F BV/share of RM2.80.

• Key highlights. SPLB’s 3Q23 earnings performance has gained traction, increasing more than double to RM25.9mn, thanks to the improvement in FFB and CPO production, as well as higher sales volumes of CPO (35% QoQ/21% YoY to 37,351 MT) and PK (39% QoQ/23% YoY to 8,544 MT), cushioning the slight drop in the ASP of CPO (Table 2). This resulted in an impressive revenue of RM172.6mn (36% QoQ/7% YoY) during the period.

• Earnings Revision. After accounting for our adjustment on CPO production (+9% YoY to 117k tonnes), we revised our FY23 and FY24 earnings forecasts higher to RM62.9mn and RM50.0mn, respectively.

• Outlook. We are of the view that SPLB’s earnings performance will be sustainable, given improvement in crop profile leading to a better yield and production growth. Note that about 330ha of encumbered areas have been recovered YTD (160ha in 3Q23), with c. 2,400ha remaining to be recovered. Nevertheless, considering SPLB's position as a pure planter, it is pertinent to acknowledge the inherent risks tied to earnings due to the correlation with fluctuations in palm product prices and production.

Source: BIMB Securities Research - 28 Nov 2023