MARKET DEVELOPMENT
Higher FFB Production to Boost SOP Earnings in 2H14
Higher FFB Production to Boost SOP Earnings in 2H14
14/05/2014 (Borneo Post) - Sarawak Oil Palms Bhd’s (SOP) production of palm oil fresh fruit bunches (FFB) is projected to grow strongly in the later half of the year (2H14).
Analysts believed the higher production of FFB will contribute better earnings for the plantation company in following quarters particularly in 2H14 as SOP’s FFB production is seasonally higher in 2H.
The research arm of Maybank Investment Bank Bhd (Maybank Research) in a report yesterday said SOP’s FFB production is highly skewed towards the second half of the year.
Maybank Research analyst Ong Chee Ting observed that over the past four years, approximately 58 per cent of SOP’s yearly FFB output was recorded on average in the second half of the year.
“First quarter is typically its lowest quarter in terms of FFB output and production peaks in third quarter.
“For 1Q14, its FFB output of 219,741 tonnes, which represented an increase of 18 per cent year-on-year was within our expectations as it met 20 per cent of our 2014 forecast of 1.088 million metric tonne (MT),” Ong pointed out.
On another note, RHB Research Institute Sdn Bhd (RHB Research) analyst Alvin Tai believed the company’s financial performance in the subsequent quarters will prove to be stronger as its production ramps up further.
Tai in a report said, “We expect (SOP’s) production to grow stronger in the subsequent quarters with full year expectation of 1.167 million tonnes, which is estimated to grow by 21.8 per cent y-o-y.
“Up to April 2014, SOP’s cumulative FFB production has reached 298,000 tonnes, which is an increase of 21.3 per cent y-o-y.
“The slowdown in new mature area (pl antation) will also aid its profitability. Refining margin should also improve with the seasonal production starts to move upwards,” Tai observed.
Tai also noted that the plantation company’s production is growing in excess of 20 per cent currently.
At the same time, he also concurred with Ong that typically first quarter has always been a seasonally weak quarter for FFB production.
Meanwhile, RHB Research said SOP’s yield is expected to start climbing in 2015 or latest in 2016 after declining in the past five years due to new plantation area reaching maturity.
The research firm noted that the slowdown in new mature plantation this year onwards will result in its FFB yield eventually rising.
Additionally, RHB Research said the company’s acquisition of equity interest in two plantation companies is expected to be completed in September this year.
The research firm believed that the acquisition should contribute about 100,000 tonnes of FFB per year beginning from next year onwards to SOP.
Earlier in March, SOP has proposed to acquire 60 per cent stake in two companies namely DD Pelita Sebungan Plantation Sdn Bhd and Mutiara Pelita Genaan Plantation Sdn Bhd for a total of RM134.9 million to be satisfied by RM66.8 million cash and 9.2 million of SOP shares at RM7.40 per share.
Furthermore, RHB Research noted that the plantation company has obtained International Sustainability and Carbon Certification (ISCC) for its refinery and half of its plantation which will be utlilised for the upcoming biodiesel plant if it were to export.
On SOP’s 100,000 tonnes biodiesel plant which is expected to start operating in the third quarter of this year, Sarawak’s B5 biodiesel requirement will take up about 60,000 tonnes.
Hence, analysts remain upbeat about the company’s prospects supported by higher average selling price of crude palm oil (CPO) of RM2,600 per tonne and better FFB output in the second half of the year.
In particular, Maybank Research is also positive on the company’s outlook supported by a projected 12 per cent of three-year compound annual growth rate for FFB output and the potential of unlocking the values of its oil palm estates near Miri through property development over the three to five years.
Analysts believed the higher production of FFB will contribute better earnings for the plantation company in following quarters particularly in 2H14 as SOP’s FFB production is seasonally higher in 2H.
The research arm of Maybank Investment Bank Bhd (Maybank Research) in a report yesterday said SOP’s FFB production is highly skewed towards the second half of the year.
Maybank Research analyst Ong Chee Ting observed that over the past four years, approximately 58 per cent of SOP’s yearly FFB output was recorded on average in the second half of the year.
“First quarter is typically its lowest quarter in terms of FFB output and production peaks in third quarter.
“For 1Q14, its FFB output of 219,741 tonnes, which represented an increase of 18 per cent year-on-year was within our expectations as it met 20 per cent of our 2014 forecast of 1.088 million metric tonne (MT),” Ong pointed out.
On another note, RHB Research Institute Sdn Bhd (RHB Research) analyst Alvin Tai believed the company’s financial performance in the subsequent quarters will prove to be stronger as its production ramps up further.
Tai in a report said, “We expect (SOP’s) production to grow stronger in the subsequent quarters with full year expectation of 1.167 million tonnes, which is estimated to grow by 21.8 per cent y-o-y.
“Up to April 2014, SOP’s cumulative FFB production has reached 298,000 tonnes, which is an increase of 21.3 per cent y-o-y.
“The slowdown in new mature area (pl antation) will also aid its profitability. Refining margin should also improve with the seasonal production starts to move upwards,” Tai observed.
Tai also noted that the plantation company’s production is growing in excess of 20 per cent currently.
At the same time, he also concurred with Ong that typically first quarter has always been a seasonally weak quarter for FFB production.
Meanwhile, RHB Research said SOP’s yield is expected to start climbing in 2015 or latest in 2016 after declining in the past five years due to new plantation area reaching maturity.
The research firm noted that the slowdown in new mature plantation this year onwards will result in its FFB yield eventually rising.
Additionally, RHB Research said the company’s acquisition of equity interest in two plantation companies is expected to be completed in September this year.
The research firm believed that the acquisition should contribute about 100,000 tonnes of FFB per year beginning from next year onwards to SOP.
Earlier in March, SOP has proposed to acquire 60 per cent stake in two companies namely DD Pelita Sebungan Plantation Sdn Bhd and Mutiara Pelita Genaan Plantation Sdn Bhd for a total of RM134.9 million to be satisfied by RM66.8 million cash and 9.2 million of SOP shares at RM7.40 per share.
Furthermore, RHB Research noted that the plantation company has obtained International Sustainability and Carbon Certification (ISCC) for its refinery and half of its plantation which will be utlilised for the upcoming biodiesel plant if it were to export.
On SOP’s 100,000 tonnes biodiesel plant which is expected to start operating in the third quarter of this year, Sarawak’s B5 biodiesel requirement will take up about 60,000 tonnes.
Hence, analysts remain upbeat about the company’s prospects supported by higher average selling price of crude palm oil (CPO) of RM2,600 per tonne and better FFB output in the second half of the year.
In particular, Maybank Research is also positive on the company’s outlook supported by a projected 12 per cent of three-year compound annual growth rate for FFB output and the potential of unlocking the values of its oil palm estates near Miri through property development over the three to five years.