STOCK-SPB: Palm Oil Producer Delivers Strong Earnings Amid Favourable Prices

Investors are closely watching the performance of a prominent palm oil producer, which recently reported core earnings significantly exceeding expectations. For the first nine months of FY25, the company recorded core earnings of RM61.4 million, marking a robust 29% year-on-year increase. This figure accounted for 77% and 79% of the investment bank’s and the street’s full-year forecasts, respectively, indicating a strong financial showing.

Performance Review

The impressive performance was primarily attributed to an increase in both Crude Palm Oil (CPO) and palm kernel (PK) prices, coupled with diligent cost management. Despite a 6.3% year-on-year decline in 3QFY25 revenue to RM139.6 million, largely due to reduced Fresh Fruit Bunch (FFB) production, quarter-on-quarter revenue saw a 6.6% increase. Average CPO prices in 3QFY25 rose to RM4,175/mt, while palm kernel prices surged to RM3,189/mt. The company also benefited from lower production costs, supported by stronger palm kernel credit, with 3QFY25 all-in CPO production cost averaging RM3,107/mt.

However, the company faced challenges with FFB production declining 8.1% year-on-year in 3QFY25. The cumulative FFB production for the first nine months of FY25 saw a modest 0.2% increase, but a 5% shortfall was noted against initial expectations, primarily due to biological tree stress experienced in July-August. Despite this, FFB yield expanded from 11.73mt/ha to 12.49mt/ha during 9MFY25.

Future Outlook

Looking ahead, management has set a revised FFB production target of 360,000 metric tonnes for FY25 and an ambitious target of 400,000-450,000 metric tonnes for FY26. The production cost outlook is positive, with an anticipated decline of RM300/mt to approximately RM2,800/mt, driven by higher FFB production volumes and strong PK credit. The company plans to allocate RM65 million for capital expenditure in FY26F, largely for replanting 1,000 hectares and maintaining 8,000 hectares of immature areas. Total harvestable area is currently 21,000 hectares and is projected to expand to 34,200 hectares in the long term. Furthermore, the company is investing in technology, deploying 10 modern harvesting machines in Miri with a target to expand to 100 units, and aims to aggressively expand its seed production unit by 60% in FY26 to a capacity of 2.5 million seeds per annum. A second interim dividend per share of 15 sen was declared for the quarter, bringing the year-to-date total to 20 sen.