Accumulate SOP on weakness, advises Maybank IB Research

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KUCHING: Maybank Investment Bank Bhd’s research side (Maybank IB Research) advises investors to accumulate Sarawak Oil Palms Bhd (SOP) stocks on weakness.

This was on the back of SOP’s second quarter 2014 (2Q14) core net profit coming in at RM33 million which met 22 per cent of Maybank IB Research’s 2014 forecast.

“The stronger year on year (y-o-y) results were boosted by higher crude palm oil average selling prices (CPO ASP) achieved of RM2,614 per tonne, higher fresh fruit bunch (FFB) production and lower all-in cost of production estimated at RM1,635 per tonne.

“SOP’s first half of 2014 (1H14) FFB output met 42.8 per cent of our 2014 forecast; in line with historical trends of 42:58 (1H:2H),” it added.

Elsewhere, Maybank IB Research saifits refining business barely broke even in 1H14, “but we do expect stronger 2H refining margins during peak crop months.”

Meanwhile, the commissioning of its 300 metric tonne per day capacity biodiesel plant at its Bintulu complex has been delayed by one quarter to October 1.

This coincided with the delay in the national biodiesel mandate programme for East Malaysia.

To note, SOP’s FFB production is highly skewed towards the later half of the year.

“Over the past four years, approximately 58 per cent (on average) of its yearly FFB output was recorded in the 2H of the calendar year.

“The first quarter is typically its lowest quarter in terms of FFB output and production peaks in the third quarter,” the research firm said.

For 1H14, SOP’s FFB output of 465,239 tonnes was within Maybank IB Research’s expectation as it met 42.8 per cent of the firm’s 2014 forecast.

“Given the recent steep correction in CPO price, we lower 2014 net profit by 12 per cent largely on lower CPO ASP assumption of RM2,500 per tonne (previously RM2,600 per tonne) besides imputing lower refining contributions and the delay in biodiesel contributions (to 4Q14).

“However, our 2015-2016 earnings remain intact, premised on unchanged RM2,600 per tonne CPO ASP forecast.”

“Our BUY call on SOP is retained with an unchanged target price of RM6.90 per share.

“We remain optimistic on SOP’s prospects over the medium term, premised on a projected 12 per cent three-year 2013 to 2016 FFB output cumulative annual growth rate, and the unlocking of its oil palm estates value near Miri via property development over the next three to five years.”