After chalking record earnings in the last financial year, we see weaker earnings outlook for FY23F given the steep correction in the CPO prices. The Group currently maintains a strong war chest with a total cash level of RM395m with a debt free structure. Meanwhile, the first quarter of FY23 results are expected to be released by end of this month. Maintain Neutral with a higher TP of RM7.98 after rolling over our valuations to FY24F based on PER of 11x.

• FY22 performance review. FFB production fell 5.6% to 176,966mt due to the felling of old but relatively productive palms and tight workforce. Cost of sales increased by 38%, mainly due to increase in the cost of purchase of FFB and windfall tax. Meanwhile, annual FFB yield was 18.52ha while oil extraction rate improved from 19.47% to 19.62%. Mature area stood at 9,557ha while immature area was at 1,403ha. Rainfall was relatively higher in FY22 and this should be favourable for production this year.

• Narrower loss in Indonesia. The decade-long unrest in the surrounding villages in Lampung and South Sumatera Provinces have caused the disruption in routine harvesting activities. In Lampung Province, the oil palm plantation has since resumed harvesting activities and mill operation. Total area accessed has marginally improved to 53.61% of the total planted area. In South Sumatera Province, harvesting of the mature area has been delayed due to the unrest in the villages neighbouring the estate. Existing staff force has been retained to enable commencement of harvesting pending clearance from the relevant authorities. The Group incurred an overall loss of RM2.9m (vs RM5m in FY22) from its share of results of the investments in oil palm plantations in Indonesia for FY22.

• Robust property sales. The Group’s 40%-owned property development, West Synergy S/B, launched four new projects with a total of 636 double storey terrace houses in Bandar Springhill, Negeri Sembilan las year and all units were fully sold. The property segment contributed profit before tax of RM8.8m to the group in FY22. Currently, it has four developments in the pipeline, ranging from light and medium industrial lots to affordable single and double-storey terrace houses.

• Adding 2,023ha plantation from Gua Musang, Kelantan. The proposed acquisition of Fauzi-Lim Plantation S/B, which is expected to be completed by 31st Jan 2023, will see the replanting of 2,023ha in the next few years with high-yielding planting materials together with some upgrades on the estate’s infrastructure to facilitate worker retention and harvesting, evacuation and husbandry. It will also implement a systematic regime of fertilizer application recommended by its agronomist.

• Maintaining steady replanting size. The Group replanted 516ha of old and low yield palms during FY22.For FY23, management targets to replant another 544ha with improved yielding seedlings. During replanting, infrastructure is also upgraded to improve harvesting and FFB evacuation operations.

Source: PublicInvest Research - 9 Jan 2023