RESULTS REPORT 

YTD 1Q FY18 revenue decreased 35.3% vs YTD 1Q FY17, whilst PAT remained in the red. YTD 1Q FY18 CPO sales volume fell by 16.9% whilst average selling prices of CPO fell by 21.9% compared to YTD 1Q FY17. Across the Malaysian plantation sector FFB production was about 4% lower over the same reference period. We expect CPO prices to trade in the range of MYR 2,200 - MYR 2,600 per MT over the next few quarters. In the case of SPB, the encumbrance of plantation assets will likely keep sales and profit growth muted over the next few quarters. 

INVESTMENT RISKS 

Risks to our recommendation and target price include: i) litigation risk, ii) a sharp reversal in CPO prices, iii) a stronger USDMYR exchange rate, iv) an increase in the general level of interest rates, and v) 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.

RECOMMENDATION 

We maintain our HOLD recommendation on Sarawak Plantation Berhad ("SPB") whilst increasing our fair value estimate slightly to MYR 1.54. FFB growth is likely to remain sluggish at SPB. Looking ahead, average ROE is likely to be maintained at levels of 1-5%, whilst P-BV stands on 0.9x trailing book value and 0.9x current year book value. 

CPO prices may have more upside this year, but not a large quantum in our view. It is worth pointing out that SPB has a very clean balance sheet; there is about 38 sen per share in cash or about 23% of the current share price. SPB is currently trading on a market cap/mature ha ratio below MYR 18,000 per ha, which seems like a very good bargain. Indeed Ta Ann Holdings Bhd has taken a 30.4% stake in SPB. Looking ahead the emergence of Ta Ann as a new shareholder augurs well for SPB's growth prospects. However it may take another few quarters before the new owners can make a significant positive impact. 

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 34,837 ha, with mature acreage of 25,670 ha. Total acreage increased by 5,200 ha in 2016, some of which will begin yielding FFB in 2018-2019.

Source: Wilson & York Securities Research - 15 May 2018