MARKET DEVELOPMENT
SOP’s Earnings to Improve Despite Missing FY13 Forecasts
SOP’s Earnings to Improve Despite Missing FY13 Forecasts
27/02/2014 (Borneo Post) - Sarawak Oil Palms Bhd’s (SOP) earnings are expected to improve this year despite the fact that its financial year 2013 (FY13) earnings missed analysts’ expectations.
According to analyst Alvin Tai from RHB Research Institute Sdn Bhd (RHB Research), SOP’s FY13 core earnings came in at RM98.5 million, which was 16 per cent below its forecast.
“This was mainly due to a lower than expected realised palm oil price of RM2,168 per tonne, which was about RM100 lower than our assumed price,” the analyst said.
As for the research arm of Maybank Investment Bank Bhd (Maybank IB Research), it observed that SOP’s core profit after tax and minority interests (PATAMI) met 92 per cent and 87 per cent of its and consensus forecasts, indicating that it was below expectations.
Despite missing expectations in 2013, Tai highlighted that they believe the group has a much stronger year in store for them this year.
“We expect the group’s performance to improve substantially this year, driven by higher palm oil prices and a turnaround in its percentage of prime mature areas, which has declined for two consecutive years but will rise significantly this year to 46 per cent versus 41.7 per cent last year,” it projected.
Regarding the recent stock price weakness, the analyst believes SOP’s stock price has been unjustly punished by selling, sparked off by Wilmar International Ltd’s (Wilmar) ‘no peat/deforestation’ policy, as the company should not be adversely affected.
This, he highlighted, is due to the fact that SOP’s landbank is largely planted up, that Wilmar will continue to buy palm oil from peat areas that are already planted before the effective date of its policy and the fact that some 40 per cent of SOP’s planted areas are on mineral soil.
As such, RHB Research’s forecast for the group remains largely unchanged. The analyst noted that SOP is trading at under 14-fold FY14 earnings and 10-fold FY15 earnings, which is undemanding given its production and earnings growth.
The research house’s fair value on SOP has been tweaked downward slightly to RM7.04 per share from RM7.12 per share, based on unchanged 16-fold current year 2014 (CY14) price earnigns (P/E).
With that, it maintained ‘buy’ on the stock as this is considered an opportunity now due to the recent pullback, triggered by Wilmar’s policy.
In contrast, Maybank IB Research cut its 2014/15 PATAMI forecasts by 18 per cent/10 per cent mainly on lower fresh fruit bunch (FFB) output and higher cost assumptions given the group’s still-low FFB yields from its newly-matured estates.
“Still we anticipate FFB output to grow by 13.5 per cent y-o-y in 2014. Its recent share price weakness (minus 9 per cent) is unwarranted as it sold less than five per cent of 2013’s sales volume to Wilmar,” it opined.
The research arm further pointed out that SOP has its own refinery in Bintulu and exports its CPO and palm olein to end-customers in India and China.
As such, Maybank IB Research raised Sarawak Oil Palms’ to a ‘buy’ with a revised target price of RM6.80 per share on 15-fold 2015 price earnings ratio (PER) as it rolled forward its valuation.
It concluded that over the medium term, it remains optimistic on Sarawak Oil Palms’ prospects premised on a projected 12 per cent three-year 2013-16 FFB output compound annual growth rate (CAGR) and the unlocking of its oil palm estates value near Miri via property development over the next three to five years.
According to analyst Alvin Tai from RHB Research Institute Sdn Bhd (RHB Research), SOP’s FY13 core earnings came in at RM98.5 million, which was 16 per cent below its forecast.
“This was mainly due to a lower than expected realised palm oil price of RM2,168 per tonne, which was about RM100 lower than our assumed price,” the analyst said.
As for the research arm of Maybank Investment Bank Bhd (Maybank IB Research), it observed that SOP’s core profit after tax and minority interests (PATAMI) met 92 per cent and 87 per cent of its and consensus forecasts, indicating that it was below expectations.
Despite missing expectations in 2013, Tai highlighted that they believe the group has a much stronger year in store for them this year.
“We expect the group’s performance to improve substantially this year, driven by higher palm oil prices and a turnaround in its percentage of prime mature areas, which has declined for two consecutive years but will rise significantly this year to 46 per cent versus 41.7 per cent last year,” it projected.
Regarding the recent stock price weakness, the analyst believes SOP’s stock price has been unjustly punished by selling, sparked off by Wilmar International Ltd’s (Wilmar) ‘no peat/deforestation’ policy, as the company should not be adversely affected.
This, he highlighted, is due to the fact that SOP’s landbank is largely planted up, that Wilmar will continue to buy palm oil from peat areas that are already planted before the effective date of its policy and the fact that some 40 per cent of SOP’s planted areas are on mineral soil.
As such, RHB Research’s forecast for the group remains largely unchanged. The analyst noted that SOP is trading at under 14-fold FY14 earnings and 10-fold FY15 earnings, which is undemanding given its production and earnings growth.
The research house’s fair value on SOP has been tweaked downward slightly to RM7.04 per share from RM7.12 per share, based on unchanged 16-fold current year 2014 (CY14) price earnigns (P/E).
With that, it maintained ‘buy’ on the stock as this is considered an opportunity now due to the recent pullback, triggered by Wilmar’s policy.
In contrast, Maybank IB Research cut its 2014/15 PATAMI forecasts by 18 per cent/10 per cent mainly on lower fresh fruit bunch (FFB) output and higher cost assumptions given the group’s still-low FFB yields from its newly-matured estates.
“Still we anticipate FFB output to grow by 13.5 per cent y-o-y in 2014. Its recent share price weakness (minus 9 per cent) is unwarranted as it sold less than five per cent of 2013’s sales volume to Wilmar,” it opined.
The research arm further pointed out that SOP has its own refinery in Bintulu and exports its CPO and palm olein to end-customers in India and China.
As such, Maybank IB Research raised Sarawak Oil Palms’ to a ‘buy’ with a revised target price of RM6.80 per share on 15-fold 2015 price earnings ratio (PER) as it rolled forward its valuation.
It concluded that over the medium term, it remains optimistic on Sarawak Oil Palms’ prospects premised on a projected 12 per cent three-year 2013-16 FFB output compound annual growth rate (CAGR) and the unlocking of its oil palm estates value near Miri via property development over the next three to five years.