SWKPLNT: Plantation Firm Poised for Stronger Future Earnings on Yield Gains and Efficiency Drives

Management provided an optimistic outlook for the company’s operational prospects, projecting stronger earnings in the second half of 2025 and throughout 2026. This positive trajectory is expected to be driven by improving yields, an increasing proportion of prime-mature areas, and operational leverage from rising own crop volumes. Despite the positive outlook on future earnings, the investment bank has maintained a “HOLD” rating with an unchanged target price of RM2.64.

Operational Performance and Recovery

The company encountered operational headwinds earlier in 2025, with prolonged wet weather disrupting pollination, leading to malformed bunches and weaker oil extraction rates (OER) in July. However, production has since rebounded significantly in August and is anticipated to strengthen further, with October projected as the peak production month for the year.

Future Growth Outlook

Looking ahead, the company reiterated its 2025 Fresh Fruit Bunch (FFB) production target of 370,000 metric tonnes, implying a robust recovery in the latter half of 2025. Furthermore, a substantial 15% year-on-year growth is guided for 2026, targeting an FFB output of approximately 424,000 metric tonnes. This growth is supported by approximately 1,000 hectares of newly matured areas in July 2025 and progressive contributions from an additional 8,500 hectares of immature areas maturing over the coming years. As of June 2025, the company’s total planted area stood at around 30,000 hectares, with a healthy age profile comprising 30% immature, 9% young mature, 51% prime mature, and 10% old palms.

Cost Management and Financial Health

While fertilizer prices remain elevated, increasing 10-20% year-on-year and likely to stay high into the first half of 2026, the company is mitigating these cost pressures through productivity gains and a gradual ramp-up in mechanisation. Labour costs are also expected to rise by 2-3% from October 2025 due to minimum wage adjustments and increased EPF contributions, but management anticipates efficiency gains to largely offset this impact. The company’s financial position remains robust, with a gross cash balance of RM232 million and net cash of RM176 million, translating to a healthy net gearing of 7%, providing significant financial flexibility for sustained dividends, investments in mechanisation, and accelerated growth initiatives.

Rating Rationale and Risks

The “HOLD” rating, with an unchanged target price of RM2.64 (based on 9x P/E on 2026E EPS), reflects a balanced view. While the FFB recovery trajectory, yield potential from young palms, and mechanisation initiatives are encouraging, persistent fertilizer cost pressures, labor shortages, and weather uncertainties continue to pose near-term margin risks. Key catalysts for potential upside include a stronger-than-expected production recovery, higher palm oil prices, and an accelerated mechanisation rollout, whereas downside risks encompass prolonged cost inflation, weaker Crude Palm Oil (CPO) prices, and regulatory constraints.