• Overview. Sarawak Plantations Bhd (SPLB) 3Q22 core PBT came in lower  following a drop of 33% YoY to RM26.2mn no thanks to 1) lower average  selling prices (ASP) realised of palm products 2) lower sales volumes of  CPO and PK and 3) higher production costs. On quarterly basis, a 50%  decline in core PBT was attributable to 36% and 32% decline in ASP  realized of CPO and PK to RM4,186/MT and RM2,286/MT respectively,  despite an increase in FFB and CPO production and sales volumes of CPO  and PK by 21% and 24% to 30,882 tonnes and 6,923 tonnes – Table 2.

• Against estimates: Inline. SPLB’s 9M22 core earnings of RM86.5mn was  within our estimates, making up 71% of our full year forecast thanks to higher realised ASP of palm products despite lower sales volumes of CPO  and PK and an increase in production costs. The difference between  reported earnings and core earnings is the fair value changes on  biological assets, amounting to RM5.12mn against RM33.19mn in 9M21.

• Dividend. A second dividend of 10.0sen per share was declared for FY22,  pushing YTD DPS to 15sen/share (9M21: 5sen), payable on 19 January 2023. This translates into 6.7% yield based on current market price.

• Outlook. SPLB remains as our favourite within the sector’s small-mid cap  space, buoyed by its undemanding valuation, favourable output growth  prospects and improving balance sheet. The only concern is its earnings  correlation to CPO price and production. Hence, improvement in  productivity and yield is a must in order to mitigate the slowdown in  commodity price.

• Our call: Maintain a BUY call with unchanged TP of RM2.85 based on  P/BV of 1.0x and BV/share of RM2.85. In view of challenging business  outlook with expected moderation in palm oil prices, we advise investors  to take any stock price rally as an opportunity to lock in their profit.

Source: BIMB Securities Research - 30 Nov 2022