Sarawak Plantation saw its FY21 core earnings doubling to RM106m, bolstered by stronger CPO prices despite weaker FFB production. The sterling results beat ours and the street expectations, making up 110%-112, respectively. A third interim DPS of 5sen was declared for the final quarter, bringing the full-year DPS to 20sen. Despite the recent rally in share price, Sarawak Plantation is still trading at an undemanding valuation of only 9x forward PER. As such, we maintain our Outperform call with an unchanged TP of RM4.27 based on 15x FY23 EPS.

• 4QFY21 revenue (QoQ: +17%, YoY: +84%). Lifted by stronger CPO prices, the Group’s plantation sales jumped 84% YoY to RM243.6m. During the quarter, FFB production slipped 18% YoY to 84,681mt (FY21: 319,993mt, YoY: +24%). Meanwhile, 4Q average realised CPO price rallied from RM2,681/mt to RM5,068/mt, while average realized palm kernel price advanced from RM1,405/mt to RM3,558/mt. FY21 FFB yield fell from 17.46mt/ha to 15.7mt/ha while FY21 oil extraction rate rose from 17.46% to 15.7%.

• 4QFY21 core earnings nearly jumped 3-fold. Excluding the change in fair value of biological assets amounting to RM11.8m, the Group’s core earnings ballooned from RM15.5m to RM44.3m, bolstered by stronger plantation margin. FY21 all-in CPO cost of production (ex-palm kernel credit and distribution and administrative expenses) averaged at RM2,100/mt vs FY20’s RM1,800/mt, dragged by lower CPO production and higher amortization coming from the enhancement area starting this year.

• Outlook guidance. Management maintains its FY22 FFB production growth of 20%. Although production has fallen in recent months due to the rainy season in Sarawak, it is likely to be a temporary setback. Harvestable area stands at 20,400ha as of end-FY21. During the FY21, enhancement area totaled 1,085ha with nearly 1,600ha normalizing. It is expected to normalize all the enhancement area this year. 1,200ha were replanted last year and is planning to replant 1,500ha in FY22. New mature is expected to increase by 1,600ha with total harvestable area of 21k ha in 2022. Meanwhile, management expects overall CPO production cost for FY22F to be higher as fertilizer cost has jumped more than 50% YTD. No forward selling for CPO sales as there is a wide gap between the spot and available forward prices in the market. On the foreign worker shortage issue, the group maintains its harvester shortage of 150 people. It has allocated capex of RM60m for 2022 with RM40m catered for replanting and maintenance of mature area and remaining RM20m for machinery upgrade (gas emission control at mills for DOE compliance). Lastly, our sensitivity analysis suggests that a RM100/mt increase in CPO price would translate into an additional PBT of RM8m.

Source: PublicInvest Research - 24 Feb 2022