KUCHING: Although the financial year 2014 (FY14) results for Sarawak Oil Palms Bhd (SOP) came in below expectations, analysts believe the group will perform significantly better this year.
According to RHB Research Institute Sdn Bhd (RHB Research) analyst Alvin Tai, this was based on two catalysts driving its earnings this year – a yield recovery and the rollout of Malaysia’s B7 biodiesel programme in Sarawak starting end-January, which will take up the bulk of its biodiesel production.
Meanwhile, analysts at Maybank Investment Bank Bhd (Maybank IB Research) observed that SOP’s fourth quarter 2014 (4Q14) profit after tax and minority interest (PATMI)RM9 million was hit by lower-than-expected fresh fruit bunch output, negative refining margin in 4Q14, and deferred export shipments to January 2015 which led to a large buildup in inventory value as at December 31, 2014 which means profits will be push back to 1Q15.
“For FY14, core PATMI of RM113 million missed our estimates by 10 per cent. Year on year profit growth was driven by higher FFB output and higher crude palm oil average selling prices,” it said in a note to investors.
“SOP’s FY14 all-in cost of production is estimated at MYR1,506 per tonne. Elsewhere, its downstream lost money due to negative refining margin in 4Q14.”
Nevertheless, RHB Research’s Tai believe SOP’s production will bounce back strongly this year after a disappointing 2014.
Hence, the firm maintained our production forecast at 1.241 million tonnes, which will represent a 19 per cent increase from 2014 levels.
“We continue to believe that SOP should deliver strong earnings given its age profile, and 2014 production disappointment was weather-related.
“After some delay, Sarawak finally rolled out its B7 mandatory biodiesel programme at end-January, for which SOP is the primary supplier. SOP’s 100,000 tonnes per annum capacity will be largely taken up by the B7 programme.”
This led RHB Research to maintain its earnings forecasts for FY15 and FY16, adding that its target price remains largely unchanged at RM6.52, which represents an 18 per cent upside from current levels.
Maybank IB Research meanwhile lowered its Y15E-16E PATMI forecasts by 21 and 12 per cent respectively mainly due to its cut in absolute FFB output assumptions by six and four per cent as we now assume a 11and 13 per cent FFB growth in FY15E to FY16E.
“Our buy call is retained with a new TP of MYR6.55 on unchanged 15 times 2016 PER.”