04/09/2012 (Borneo Post) - Sarawak Oil Palms Bhd (SOP) has seen a significant recovery in fresh fruit bunch (FFB) production for the month of July, boosting the company’s prospects of a good turnaround this year.

In line with the Malaysian plantation industry’s weak performance, SOP registered lower first half financial year 2012 (1HFY12) earnings of RM91.6 million, down 27.5 per cent year-on-year (y-o-y) as slightly softer production and a steep drop in realised palm prices suppressed profits.

The planter posted second quarter (2Q) FY12 revenue of RM281.6 million, down 23.1 per cent quarter-on-quarter (q-o-q), down 2.3 per cent y-o-y, while reaping earnings of RM51.9 million (down 26 per cent y-o-y, up 30.6 per cent q-o-q) as a seasonal uptick in production lifted profits sequentially.

“Despite 2QFY12’s poor output, SOP’s FFB production has made a strong recovery in July after four consecutive months of y-o-y decline.

“July production rose by 12.8 per cent y-o-y, making SOP the first among our Malaysian plantation coverage to post double-digit y-o-y monthly production gains.

“This has finally pulled SOP’s year-to-date production back to marginally positive territory.

Our full year expectations are for production to grow by 10.3 per cent in 2012, implying that 2HFY12 production will increase by 20.5 per cent y-o-y.”

The research house added that 1HFY11 production accounted for 44.5 per cent of FY11’s full year output following an especially strong 2QFY11; it expected production to be ‘more skewed towards 2H this time around’.

In line with its view of a substantially stronger 2H, the research house kept its estimates for SOP unchanged following an earnings and production forecast revision on August 3.

As such, it left the fair value for the stock unchanged at RM9.37 per share, based on 13 times FY13 price earnings (PE).

“SOP remains our top Malaysian plantation pick given its young tree age profile, attractive valuations and strong management expertise.

“Despite the weak 2Q, the company is still trading at an undemanding 13.4 times FY12 PE,” the research house noted.