RESULTS REPORT

YTD 4Q FY16 revenue increased 14.9% vs YTD 4Q FY15, whilst sequential margins continued rising resulting in a profit of MYR 22.2 mn YTD 4Q 2016, a rise of 4.3%. YTD 4Q FY16 CPO sales volume fell 11.9% vs YTD 4Q FY15, whilst CPO prices received by SPB increased by 22.4% over the same period. Across the Malaysian plantation sector FFB production is about 10% lower than last year. However, FFB production seems to be bottoming. Though CPO prices may weaken from here, SPB shares have little downside. See page two and five for more detail.

INVESTMENT RISKS

Risks to our recommendation and target price include: i) a sharp reversal in CPO prices, ii) a stronger USDMYR exchange rate, iii) an increase in the general level of interest rates, and iv) a sharp slowdown in the general level of economic activity in Malaysia or among the economies of the major CPO importers, which include China, India, Pakistan, Europe and the US. Investors can take some comfort in the fact that vegetable oils are among the most resilient of commodities.

RECOMMENDATION

We maintain our BUY recommendation on Sarawak Plantation Berhad (“SPB”) but reduce our fair value estimate to MYR 1.98. The drop in FFB production has crimped profits among all players, and has resulted in multi-year lows for SPB’s share price (see page 4). Looking ahead, average ROE is likely to be maintained at levels of 4-5%, whilst P-BV stands on 0.8x trailing book value and 0.8x current year book value. Should SPB manage to bring additional acreage on line, the picture will brighten somewhat. SPB recently increased its land bank by about 15%. At current prices, investors can expect a total return of 6-7% pa for the next few years. Investors may also have to contend with lower revenue levels should CPO prices weaken 1H 2017. It is worth pointing out that SPB has a very clean balance sheet; nearly 36 sen per share in cash or about 20.2% of the current share price.

COMPANY PROFILE

SPB’s major line of business is the cultivation and milling of palm oil. The company was incorporated in October 1997 and converted into a public limited company in Feb 2000. SPB was listed in Aug 2007. The company has a total planted area of 34,194 ha, with mature acreage of 24,623 ha. Total acreage has been increased by 5,200 ha, some of which will begin yielding FFB in 2017-2018. See page five.

Source: Wilson & York Securities Research - 24 Feb 2017