BPLANT’s FY22 results missed expectations as elevated production costs extended into 4QFY22. The group has returned to profitability in 4QFY22 following an 11% QoQ seasonal increase in FFB production. However, 2HFY22 earnings remained muted compared to 1HFY22 on softer CPO prices and elevated costs. We trim our FY23F earnings by 3% and our TP by 2% to RM0.64 (from RM0.65) but maintain our MARKET PERFORM call.

Below expectations. FY22 core net profit (after adjusting for pre-tax disposal gains of RM458.8m) missed our forecast and consensus estimate by 7% and 9%, respectively. We believe the variance against our forecast stemmed from elevated costs during 2HFY22. Nonetheless, BPLANT surprised with a dividend of 3.3 sen, bringing the full-year total to 14.5 sen. This is above our expectation of 12.5 sen, largely due to the disposal of plantation assets totalling RM90.1m in 4QFY22.

YoY, FY22 revenue growth tapered off to 12.1% for FY22. The group recorded an average CPO price of RM5,066/MT for FY22, up 17% due to the peak hit in 1HFY22. However, the higher price was partially offset by a 6% drop in FFB production as the group faced persistent labour shortage as well as an aging palm profile. Gross profit fell 25.4% hit by a sharp increase in operating cost. Elevated fertiliser prices as well as the minimum wage increase resulted in cost jumping 33%. Overall, core earnings fell 20.2% as the group’s margins contracted significantly in 2HFY22.

QoQ, 4QFY22 FFB production picked up 10.7% seasonally, a noticeable change compared to the 5% drop during 4QFY21. Group CPO prices dropped 3% from RM4,089/MT to RM3.958/MT. The uptick in production largely offset the minor drop in price, resulting in revenue growing 9.7%. The group also returned to profitability in 4QFY22, recording a core net profit of RM12.7m vs losses of RM0.4m during 3QFY22.

Looking forward. The immediate outlook for the group remains mixed. On one hand - the group continued to struggle with maintaining its yield and managing an aging palm plantation. Fertilisation costs hit earnings significantly during 2HFY22 and prices have remained elevated going into FY23. Barring an unexpected change in the geopolitical climate, global supply chains are only expected to recover in 2HFY23, resulting in costs possibly sustaining at elevated levels. On the other hand - labour shortages are expected to ease in FY23 as the government takes steps to address the backlog of applications. The group is cautiously optimistic on the labour situation improving in FY23 to help address its yield issue to a certain extent.

Looking at the global edible oil market, CPO prices seem to have found some support on the back of the reopening of China, the world’s largest edible oil market, as well as the growth prospects from biodiesel. Indonesia’s recent push for B35 biodiesel in particular is expected to drive up demand. Prices have since stabilised around the RM3,800- RM4,000/MT range and overall, we continue to expect CPO prices to average out to RM3,800 for CY22.

We trim our FY23F earnings by 3%, having updated our FY22 numbers. Additionally, we introduce our FY24 forecasts.

We continue to like BPLANT for its: (i) position as a pure upstream producer and proxy to elevated CPO prices, and (ii) cash-rich position and good dividend payout record. However, we remain cautious on cost pressures and falling yields that drag performance as commodities prices are also coming off. Maintain MARKET PERFORM.

We reduce our TP by 2% to RM0.64 (from RM0.65) based on FY23F PER of 12x, which is at a 20% discount to the 15x prospective PER we ascribe to its larger and more integrated peers. There is no change to our TP based on ESG given a 3- star rating as appraised by us (see Page 3).

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

Source: Kenanga Research - 22 Feb 2023