Sarawak Plantation poised for stronger production recovery next year

PETALING JAYA: Sarawak Plantation Bhd is set for a stronger recovery next year as production improves and output momentum strengthens, according to Philip Capital Research.

After an engagement with the planter recently, the research house said it came away “feeling upbeat on the group’s production recovery trajectory, improving cost pass-through dynamics, and a steadier earnings outlook heading into 2026.”

Philip Capital Research noted that Sarawak Plantation has revised down its 2025 fresh fruit bunches (FFB) output target to 355,000 to 363,000 tonnes.

The research house said the plantation group delivered record-high FFB output of about 39,800 tonnes in October and sustained momentum in November at around 37,000 tonnes, bringing year-to-date production up to 326,000 tonnes.

It said Sarawak Plantation expects a sharp rebound in 2026, with production projected to surge 24% to 27% year-on-year to 450,000 tonnes, supported by better crop formation and maturing young palms.

According to Philip Capital Research, Sarawak Plantation acknowledged inflationary pressures “including a 1% increase in Employees Provident Fund contributions for foreign workers and a 3% rise in labour expenses following minimum wage adjustments”.

Fertiliser prices are expected to rise by about 5% year-on-year, although the first half of 2026 (1H26) price negotiations remain ongoing, it added.

“Despite this, Sarawak Plantation remained confident that unit production costs can ease modestly to RM2,400 and RM2,600 per tonne in 2025 and 2026 respectively from RM2,700 per tonne in 2024,” Philip Capital Research noted.

The improvement, it said, would be driven by higher internal crop helping dilute fixed costs, while selective third-party FFB purchases continued to mitigate margin and extraction leakages.

While revenue softened year-on-year in third-quarter (3Q25) and nine-month ended Sept 30, 2025 (9M25) due to weaker sales volume and production, Philip Capital Research said Sarawak Plantation’s earnings held firm, supported by stronger crude palm oil and palm kernel prices as well as tax savings from replanting activities.

It maintained its “hold” rating with a target price of RM3.25 per share based on 11 times forecast earnings for the financial year ending Dec 31, 2026.

“We see the ongoing production recovery in 4Q25, coupled with better cost visibility and improving fruit quality into 2026, to support the earnings trajectory,” it said.

Key risks include production volatility, price fluctuations in palm products, cost inflation and regulatory uncertainties, the research outfit added.

In the third quarter of Sept 30, 2025 (3Q25), Sarawak Plantation saw a marginal increase of 0.2% year-on-year (y-o-y) in earnings to RM31.1mil, or earnings per share (EPS) of 11.15 sen.

Revenue, however, fell by 6% y-o-y to RM139.7mil on lower sales volume of CPO and palm kernel (PK) despite higher realised average selling prices during the current financial period.

For the nine-month period ended Sept 30, 2025 (9M25), Sarawak Plantation’s net profit grew by 6% y-o-y to RM80.6mil or EPS of 28.89 sen while revenue declined marginally by 0.4% y-o-y to RM406.2mil.

In a filing with Bursa Malaysia, the company said the average selling prices of crude palm oil and palm kernel had increased by 8.9% and 44.1% respectively while sales volumes of crude palm oil and palm kernel had decreased by 13% and 14.7% respectively for the current financial period.