Sarawak Plantations: Growth potential despite EU ban threats

Sarawak Plantations Berhad (SPB) is gearing up to replant 4,000 hectares in the fiscal year 2024, driven by the availability of its seedlings from two new nursery plants established in late fiscal year 2022.

The company is targeting an optimistic fresh fruit bunch (FFB) yield of 18 metric tonnes per hectare in FY24, up from 16.85 metric tonnes per hectare in FY23, credited to improved oil palm tree age.

With 70% of its planted area consisting of prime production trees in FY23, SPB foresees robust FFB production as more areas reach maturity.

Sarawak Plantations: Harvestable area

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Furthermore, SPB anticipates its harvestable area to reach 21,000 hectares in FY24, including replanting activities and additional land from recovered encumbered land. Currently, 1,700 hectares out of the 4,200 hectares of recovered encumbered land have been planted.

The company estimates an average crude palm oil (CPO) price of RM4,200 per tonne for FY24, although a slightly bearish outlook persists at RM4,000 per tonne due to global demand concerns.

Analysts reiterate a HOLD recommendation with a higher target price of RM2.16 (previously RM2.04), reflecting SPB’s forward price-to-earnings multiple of 8.2x and FY24 earnings per share of 26.4 sen. However, they caution that the current share price adequately reflects SPB’s growth potential.

Risks include potential EU export bans, changing weather patterns affecting FFB production, taxation and export bans in Indonesia impacting local CPO demand, as well as labor shortages and rising operational costs.