BPLANT’s 1HFY22 results came in broadly in-line with our/consensus forecasts. Elevated CPO prices sustained into 2QFY22 but were offset by a 4.8% fall in FFB production as the group continued to feel the effects of labour shortfalls. Overall, we have adjusted our FY22/FY23 earnings estimates downward slightly by 4.6%/3.4% imputing lower FFB production. We maintain our OUTPERFORM call but with a lower TP of RM0.95.

1HFY22 within expectations. 1HFY22 CNP came broadly in-line with our and consensus estimates, accounting for 55%/56% of full-year earnings, respectively, and growing 201.3% YoY. CPO prices stayed elevated throughout 2QFY22 with the group recording an ASP of RM6,327/MT, up 62% from the same period last year. However, the increased CPO prices were offset by a 4.8% fall in FFB production YoY as the combination of the continued labour shortage, their aging palm trees profile and the Hari Raya holidays in early May resulted in a weaker harvest. The declared dividend of 2.75 sen brings the total so far up to 10.05, in-line with our expectation.

QoQ, their seasonal FFB production was disappointing as it only increased marginally by 0.2%. Compared to the 28.6% seasonal jump in FY21, the group’s yield flattened as mechanisation efforts and efficiency initiatives could only address labour issues and their aging palm trees profile to a certain extent. We still expect a seasonal uptick in FFB production in 2HFY22 as the group historically records about 55% of its production in the 2H. However, given the weaker CPO pricing in recent months, we may see the group recording most of its earnings in the 1H.

Looking forward, we expect CPO prices to stay firm for the rest of FY22, albeit at a lower price of about RM4,000/MT. While CPO prices soared during in 2QFY22 due to Indonesia briefly ceasing exports, prices have fallen sharply since they resumed exporting. Nonetheless, the outlook for global edible oil supply in 2HFY22 continues to be tight as the effects of global supply chain disruptions persist. Given the current macroeconomic outlook, global supply is only expected to meaningfully recover in 1H 2023 at the earliest. As such, CPO prices for 2023 are expected stay at around the RM4,000/MT mark.

If FFB yields continue to stay flat, the group may face difficulty in spreading its fixed costs across production. While prices have eased, fertiliser costs remain elevated as global supply continues to feel the effects of global supply chain disruptions. While we are not expecting a major increase in costs, margins may tighten if moving forward if yields fall below our estimates.

Post results, we adjust FY22F/FY23F earnings downwards by 4.6%/3.4% as we reduce our growth estimates for FFB production from 5% for FY22 to a flatter 1.5% and expect a 5.5% contraction in FFB production in FY23. We have also reduced our dividend estimates for FY22/FY23 to 14.0/7.0 sen.

Maintain OUTPERFORM with a lower TP of RM0.95. We continue to like BPLANT for its generous dividends and strong expected cash flows over FY22-23. However, the group continues to feel the effects of their aging palm trees profile and any improvements from their accelerated replanting are still a few years out. Overall, we maintain OUTPERFORM but with a slightly lower TP based on an unchanged FY23F PER of 13x, a 20% discount to the 16x we ascribe to its larger, more integrated peers. We make no adjustments to TP based on a 3-star ESG rating as appraised by us.

Risks to our call include: (i) lower-than-expected CPO prices, and (ii) higher-than-expected rise in costs.

Source: Kenanga Research - 24 Aug 2022