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Sarawak Plantations (SPLB MK)

  • We reaffirm our positive view on SPLB with earnings estimated to grow at a robust CAGR of 47% over the next 3 financial years, supported by organic growth and its transformation plan.

  • SPLB stands to reap benefits from acceleration in higher palm products price and improvement in FFB production.

  • Low valuation. SPLB current valuation implies an 8.5x its 12-months forward PE, below the current sector’s average of 21.9x and its 3-years average forward PER of 22.8x. SPLB now trade near -1SD below 3-yrs mean with gearing of 4%

 

 

 

A new SPLB has emerged following Ta Ann acquisition

SPLB is now a much organised and efficient company, in our opinion, following the entry of Ta Ann as shareholder in 2018. We believe that SPLB is transforming into superior company post-FY20 as we believe 1) its harvestable areas and crop profile has improved, hence will generate better yield and production growth, and 2) higher FFB, PK and CPO production will partially offset any potential downward-swing of palm products price.

 

SPLB is on a growth trajectory

We foresee that SPLB is on its way to boost its earnings, estimated to grow at 3-year CAGR of 47.3% on the back of 12.7% increase in revenue; supported by higher production, ASP of palm products and costs savings. Central to our forecast is improvement in production resulting from increase in harvestable areas and FFB yield, aided by better palm product prices.

 

FFB production expected to grow as yield improve. 

The entry of Ta Ann has developed operating synergies by allowing SPLB to leverage on Ta Ann expertise via knowledge sharing and estates management practice to improve yield as well as to deal with NCR land issues. 

 
 

As shown in Chart 3, SPLB’s FFB production grew 21.5% yoy to 341,065 MT in 2020 mainly attributed by field improvements from existing areas, normalised areas as well as palms entering to maturity and progress into higher yielding age brackets. We expect from FY20 onwards, FFB production growth could rise further by another 16% and 12% yoy to 395.6k tonnes and 443.1k tonnes as yield improved to 19.9/ha and 21.6/ha respectively for FY21F and FY22F (Table 1).
 

 

 
 
We believe the stock is currently undervalued compared to other plantation companies within our universe. SPLB’s current low PER implies that the market has not fully accorded the tremendous earnings growth to be generated by the company.
 
 
The stock’s current valuation implies a PE of 8.5x its 12-months forward PE, below the sector’s average of 21.9x and its 3-years average forward PER of 22.8x. In addition, SPLB now trades near -1SD below 3-yrs mean with gearing of only 4%.
 
 
 
 
Peer Comparison
  SWKPLNT HAPSENG TSH FGV
Market Cap (RM m)

641.8

1,471.4

1,449

4,925

Net Profit FY21

75.4

57.2

75.3

215.6

PER (x) 

8.5

25.7

19.2

22.8

Div Yield 

4.3%

1.4%

1%

1.5%

ROE

10.4%

5.3%

5.4%

3.5%

                                                                           Source: BIMB Securities/Bloomberg

 

 
 
 
 
 
Disclaimer
The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. 


https://klse.i3investor.com/blogs/supergrowthinvest/2021-05-04-story-h1564259899-SPLB_We_believe_the_stock_is_currently_undervalued_compared_to_other_pl.jsp

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