KUCHING: Sarawak Oil Palms Bhd’s (SOP) long term prospects remain intact despite the cancellation of a plan to acquire more landbank for oil palm plantations.
Yesterday, the stock dropped slightly by two sen or 0.37 per cent to close at RM5.37.
The research arm of Maybank Investment Bank Bhd (Maybank IB Research) in a report yesterday said the company’s growth will be supported by two-year compound annual growth rate (CAGR) of earnings per share (EPS) of 32 per cent from 2014 to 2016.
The company’s earnings will also be underpinned by a projected CAGR of 12 per cent for its fresh fruits bunches (FFB) output from 2014 to 2016, it said.
Additionally, SOP’s other growth catalyst could be the unlocking of its oil palm estates value near Miri through property development over the next three to five years.
While the landbank acquisition would have been long term positive for SOP, Maybank Research did not factor the contribution of the landbank for the potential of planting palm oil into its earnings forecast.
To recall, SOP announced plan to acquire a landbank in March by entering into a conditional share sale agreement (SSA) for the proposed acquisition of 60 per cent equity interest in DD Pelita Sebungan Plantation Sdn Bhd (DD Pelita) and Mutiara Pelita Genaan Plantation Sdn Bhd for an aggregate purchase price of RM134.9 million.
The SSA also includes the arrangement to contract the vendors for their services to procure the natives with up to 8,000 ha of native customary rights (NCR) land to come with the state’s government scheme for the development of the NCR land into oil palm plantations for a procurement consideration of RM3,500 per hectare to be satisfied by the issuance of 473 SOP share at RM7.40 per share.
The arrangement also includes the proposed acquisition of 34.9ha of land in Bintulu for an aggregate consideration of RM4.3 million.
Nonetheless, for the near term outlook of the plantation sector, the research firm is less optimistic and has reduced its assumption for the average selling prices (ASP) to RM2,400 per tonne due to the recent weakness in crude oil price and the depreciation of the ringgit which affect the crude palm oil (CPO) price.
Simultaneously, the research firm also revised downward the average selling price of oil palm for SOP and cut its 2015 and 2016 EPS by 17 per cent and nine per cent respectively.