KUALA LUMPUR (Sept 25): Sarawak Plantation Bhd (KL:SWKPLNT) is a standout dividend play, with maturing estates driving above-industry production growth and its Sarawak-only operations shielding it from Indonesian regulatory risks, according to BIMB Securities.

BIMB Securities has upgraded the stock to a "buy" with a higher target price of RM5.40 (from RM4.41) based on a price-to-earnings multiple of 12.5 times pegged to financial year ending Dec 31, 2027 (FY2027) earnings per share of 43.3 sen, citing a standout projected FY2026-FY2027 dividend yield of 5.7%-6.3%.

This is after the research house raised its core earnings forecasts by 6% to RM105 million for FY2026 and by 15% to RM121 million for FY2027, reflecting higher realised crude palm oil (CPO) average selling price assumptions alongside its production and cost estimates.

Citing the management, BIMB said Sarawak Plantation expects output to improve further in September and October in line with the seasonal production peak cycle.

The research firm noted Sarawak Plantation's fresh fruit bunch (FFB) production rose 12.7% year-on-year to 242,711 tonnes in the first eight months of 2026, with August output reaching 36,622 tonnes.

"Own estates supplied 62% of FFB processed in 1H2026 (first half of 2026), supporting greater control over fruit quality," said BIMB, which forecasts Sarawak Plantation's oil extraction rate to be at 19%-20% for FY2026-FY2027.

Earlier replanting investment is translating into a larger productive estate base, with "approximately 1,100ha [entering] maturity in 2025, followed by around 1,000ha during 2026", and "a further 1,000ha is expected to mature in 2027, said BIMB in a note.

Management targets FFB production to remain at 410,000 tonnes for FY2026 and 500,000 tonnes for FY2027, subject to reassessment as weather conditions develop, the research house said.

BIMB's own production assumptions remain conservative relative to management's guidance, factoring in the risk of an El Niño-related impact on yields.

"Dry weather and signs of water stress have become more apparent across Sarawak", with "MetMalaysia's latest ENSO (El Niño Southern Oscillation) update [projecting] El Niño strengthening to very strong intensity towards year-end and persisting until May 2027," it said.

Further, the house said, Sarawak Plantation sells predominantly at spot prices, positioning it to benefit from elevated CPO prices, citing higher realised CPO average selling price at RM4,447/tonne in the second quarter of 2026 (2Q2026) from RM4,034/tonne in 1Q2026.

BIMB expects prices could potentially trade above RM5,000/tonne in 1H2027 if more severe El Niño-related yield losses constrain edible oil supply while biodiesel demand remains resilient.

While the group has no fixed dividend policy, Sarawak Plantation management has historically maintained a 40%-70% payout ratio, said the house.

BIMB estimates a higher dividend per share of 25 sen for FY2026 and 28 sen for FY2027, supported by healthy cash flows, with a net cash position (net cash per share of 13.7 sen as at 1H2026).

BIMB said key risks include "should El Niño intensify and lead to sustained rainfall deficits at individual estates, the lagged effects of moisture stress on crop development could result in more material yield pressure in FY2027", and "severe haze could potentially constrain harvesting productivity in the near term".