KUALA LUMPUR (June 24): CGS-CIMB Research has initiated coverage of Sarawak Plantation Bhd (SPB) at RM2.05 with a “hold” rating and target price (TP) of RM2.05 and said SPB trades at a low FY22F/23F P/E of 4x/7.5x but reckons lower CPO prices in 2HFY22 and rising costs could limit the stock’s upside potential.

In a note on Thursday (June 23), the research house said SPB appears fairly valued given its rising costs and ESG concerns but the stock could re-rate following additional stake sales to Ta Ann Holdings Bhd.

CGS-CIMB projects SPB to register strong core EPS growth of 31% y-o-y in FY22, owing to higher crude palm oil (CPO) prices of RM5,500 per tonne, which offsets the margin compressions from higher operating costs (owing to a surge in fertiliser, labour and transport costs).

“We then expect a core EPS decline of 48.2%/6.3% in FY23F/24, mainly underpinned by weaker prices of RM3,800/RM3,500 per tonne, partially mitigated by a recovery in FFB yields and higher mature areas that should drive FFB output growth of 5% to 7% for FY22-24, in our view.

“Every RM100 per tonne change in our CPO price forecasts will impact our FY22-24 core EPS forecasts by RM4.9 million-RM6.4 million or 3%-9%,” it said.