21/03/2012 (Borneo Post) - Sarawak Plantation Bhd’s (Sarawak Plantation) turnaround efforts in 2011 is set to bear fruits this year as its then-brand new management placed immediate focus on improving the company’s fresh fruit bunch (FFB) yield and oil extraction rate (OER).

“We reckon that the company is now a potential turnaround story that could be worth following. The main catalyst will be the significant jump in the group’s FFB yield in the next two years from its current low base of 13 metric tonnes per hectare,” Kenanga Investment Bank Bhd (Kenanga Research) analyst, Alan Lim told The Borneo Post.

The appointment of a new managing director, Datuk Hamden Ahmad and a new chief operating officer, Zahari Mohd Nusi had delivered changes to the company that subsequently brought about an impressive earnings growth of 139 per cent year-on-year to RM82 million in financial year 2011.

Lim attributed the good results to a successful enhancement of the company’s FFB yield by 15 per cent and the OER by 42 percentage points to 21.03 per cent. However, he believed that the company’s turnaround was still at its very early stage.

“In our 2013 estimates, the FFB yield should improve to the industry level of 20 metric tonnes per hectare, leading to a 40 per cent surge in the FFB production to 440,488 metric tonnes from 314,758 metric tonnes in financial year 2011,” the analyst added.

The company’s financial year 2012 price earnings ratio of nine times is at least 32 per cent lower than other mid-cap pure planters which traded between 13.3 times to 15.6 times their financial year 2012 price earnings ratio.

Lim expected Sarawak Plantation to undergo aggressive expansion in financial year 2012 through the expansion of its planted area by 9,200 hectares, a 32 per cent increase year-on-year. This would increase its immature/planted area ratio from 12 per cent to 36 per cent by the end of financial year 2012, propelling the company on par with bigger-cap planters such as Genting Plantations Bhd and IJM Plantations Bhd.

“We expect generous financial year 2012 to 2013 estimated dividends of 16.7 to 20.7 sen, representing net dividend yields of 5.5 to 6.9 per cent,” Lim predicted, adding that this was higher than other planters’ net dividend yields which range from 1.3 per cent to 4.4 per cent.

He noted that he had assumed a payout ratio of 50 per cent, slightly lower than the group’s five-year historical payout range of 55 to 60 per cent due to its need to converse some cash to develop its land bank. The analyst went on state his predictions of financial year 2012 to 2013 earnings of RM94 million to RM116 million, representing a strong growth of 14 to 24 per cent.

“Financial year 2012 key earnings driver will be the 23 per cent surge year-on-year in the FFB production to 386,865 metric tonnes as the FFB yield improved to 16.8 metric tonnes per hectare,” he opined.

With the assumption that average crude palm oil (CPO) prices of RM3,100 per metric tonne for both financial year 2012 to 2013, Lim believed earnings could surprise on the upside should CPO prices turn out to be better than expected.