Sarawak Plantation records strong start to 2020
KUCHING: Sarawak Plantation Bhd (Sarawak Plantation) saw a strong start to 2020, but analysts warn the company could see slower growth in the second quarter (2Q) due to lower crude palm oil (CPO) prices.
In a report, the research team at Public Investment Bank Bhd (PublicInvest Research) noted that Sarawak Plantation’s 1Q of the financial year 2020 (FY20) core earnings of RM7.8 million were within expectations.
“The steady results were attributed to an increase in both CPO product prices and fresh fruit bunches (FFB) production. Nevertheless, we expect earnings growth to slow in 2Q on lower CPO prices, though partly mitigated by stronger output growth,” it highlighted.
It explained the group’s plantation sales jumped 43 per cent y-o-y to RM98.9 million, led by an increase in both CPO prices and FFB production.
“During the quarter, FFB production rose 11 per cent yo-y to 65,269 MT. It also had an external FFB production of 102,277 MT, making up 61 per cent of the total FFB processed,” it added.
The research team also noted that the average realised CPO price jumped 32.5 per cent y-o-y to RM2,643 per MT while average realized palm kernel price in 1QFY20 rose from RM1,142 per MT to RM1,597 per MT. FFB yield also improved, while oil extraction rate stood at 19.86 per cent.
“Excluding the change in fair value of biological assets amounting to RM1.7 million, the group’s core earnings rose 37 per cent y-o-y to RM7.8 million, mainly driven by stronger plantation margin.
“During the quarter, earnings before interest and tax (EBIT) margin improved from 8.3 per cent to 10.3 per cent. 1QFY20 allin CPO cost of production (expalm kernel credit: RM200 per MT to RM300 per MT) averaged at RM2,015 per mt,” PublicInvest Research said.
On its outlook, the research team said, Sarawak Plantation targeted a strong FFB production growth of 23 per cent y-o-y to 346,000 MT this year on the back of yield improvement from 1,600 hectare (ha) enhancement area transferred to harvestable area after achieving FFB yield of 10.2 MT per ha.
“For January to April, it jumped 18.6 per cent y-o-y and we expect to see a strong catch-up in the subsequent months,” it said.
It noted that Sarawak Plantation has also allocated RM20 million capex for FY20 with RM8.5 million for the replanting of 1,100ha landbank, another RM4 million for 2,800ha enhancement area, RM4 million for the new planting activities of 500ha and RM3 million for mill improvement. (1QFY20: RM4.1 million of the budgeted capex already spent).
“Total encumbrance area stood at 6,400ha as of 1QFY20 with 500ha area expecting to be recovered this year. Total harvestable area is expected to expand from 19,000ha to 20,890ha this year (FY19: 19,000ha with new mature area: 1,390ha – replanting area: 1,100ha with enhancement area: 1,600ha),” it said.
“For FY20, management expects an additional mature area of 1,390ha with 990ha from northern already declared mature in early-2020 and remaining 400ha from the northern region will turn into mature area in the 2H,” it added.
In terms of forward sales, PublicInvest Research pointed out that Sarawak Plantation has locked in three CPO sales contracts with collective outstanding CPO amount of 15,500MT (18 per cent of full-year CPO production) at an average price of RM2,519 per MT.
Its CPO price target for the remaining quarters range at RM2,100 per MT to RM2,200 per MT.