SOP’s earnings to pick up strongly in 2H18


KUCHING: Despite Sarawak Oil Palms Bhd’s (SOP) slow start for first quarter of 2018 (1Q18), analysts expect the group’s earnings to pick up strongly in the second half of 2018 (2H18).

SOP’s 1Q18 profit after tax and minority interests (PATMI) of RM26 million was off to a slow start as it met just 11 per cent of the research arm of Maybank Investment Bank Bhd’s (Maybank IB Research) full-year estimates, which was below expectation.

“We expect earnings to pick up strongly in 2H18 when output peaks seasonally,” Maybank IB Research said.

However, the group’s 1Q18 output of 285,625 metric tonnes (MT) met 18 per cent of Maybank IB Research’s full-year forecast which was within historical trends.

“Since 2010, with the exception of 1Q14 and 1Q17 whereby their output contributed to 21 per cent and 23 per cent of full-year output, the 1Q output was mainly in the region of 18 to 19 per cent.

“It appears 2018’s output trend may have reverted to past trends whereby SOP’s output typically has a distinct peak in 3Q,” the research arm said.

The research arm thus maintained its 12 per cent year on year (y-o-y) output growth forecast for financial year 2018 (FY18).

Pending an update, Maybank IB Research kept its earnings forecasts. The research arm’s core net profit for FY18E, FY19E and FY20E amounted to RM245 million, RM279 million and RM347 million, respectively.

Nonetheless, Maybank IB Research continued to like SOP for the stock’s undemanding valuation of eight-fold 2018 price earnings ratio (PER), and young trees of 10 years old (average) which promises 11 per cent 2017-20E compound annual growth rate (CAGR) in fresh fruit bunch (FFB) output.