• Maintain HOLD (TP: RM2.16) Sarawak Plantations (SPLB)'s FY23 PATAMI of RM64.4mn (-33 YoY%) broadly in line with our expectations. Excluding the effects of fair value changes in biological assets, which amounted to a loss of RM4.36mn against a loss of RM6.76mn in FY22, SPLB reported a core net profit of RM68.8mn (-34% YoY). The decline in profit was primarily due to the effect of lower realised average selling price (ASP) of palm products, despite higher sales volume registered for CPO and PK during the period. ASP of CPO and PK decreased by 24.4% and 33.4% respectively to RM3,764/MT and RM1,896/MT; whilst sales volume of CPO and PK increased by 8.5% and 11.1% respectively to 123,983 MT and 28,293 MT. Looking forward, 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; based on historical low 3-yrs avg. P/BV of 0.77x and FY24/25F BV/share of RM2.80.

• Key highlights. YTD, approximately 500 hectares of encumbered areas have been recovered (200 hectares in 4Q23), leaving around 2,200 hectares remaining to be recovered. Additionally, there are approximately 400 hectares designated as enhancement areas to be normalised in 2024 (with 340 hectares normalised in FY23).

• Earnings Revision. No change in earnings forecast.

• Outlook. Despite our cautiously optimistic view for SPLB, motivated by positive expectations for output growth and continual strengthening of balance sheet, it is essential to acknowledge a potential caveat. Given SPLB's as a pure planter, there is inherent risk associated with its earnings, as it has a high correlation to the fluctuations in the palm products price and production. The downside risk to earnings in the near term, however, may stem from lower-than-expected ASPs of palm products and lowerthan-projected production (both from own crops and third parties), even as management remains focused on increasing productivity at all levels of operation and reducing unit production costs.

Source: BIMB Securities Research - 27 Feb 2024