Thursday, February 2

Sarawak Oil Palms’ 1Q22 earnings came in above expectations

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Sarawak Oil Palms’ fresh fruit bunch growth for 1Q22 was down 13.7 per cent y-o-y, which was significantly below RHB Research’s minus 0.5 per cent y-o-y projection and management’s flattish guidance for FY22.

KUCHING (May 24): Analysts see that Sarawak Oil Palms Bhd’s (Sarawak Oil Palms) first quarter of 2022 (1Q22) earnings have come in above expectations despite the fact that labour shortages remain unresolved.

To note, the group’s 1Q22 earnings were above expectations, at 35-48 per cent of RHB Investment Bank Bhd’s research wing (RHB Research) and street financial year 2021 (FY21) estimates.

“Core net profit jumped 171 per cent year on year (y-o-y) to RM188 million, on higher average palm oil and palm kernel (PK) prices of RM6,308 per tonne (up 62.4 per cent y-o-y) and RM5,128 per tonne (up 77.5 per cent y-o-y),” the research firm recapped.

“This boosted profit significantly, given the company’s sensitivity to any change in crude palm oil (CPO) prices.”

Meanwhile, Sarawak Oil Palms’ fresh fruit bunch (FFB) growth for 1Q22 was down 13.7 per cent y-o-y, which was significantly below RHB Research’s minus 0.5 per cent y-o-y projection and management’s flattish guidance for FY22.

“In the first four months of 2022 (4M22), this decline has worsened to minus 14.4 per cent y-o-y. The main culprit – the labour shortage – remains unresolved (the current level was at 30-35 per cent in 1Q22).

“Sarawak Oil Palms intends to partly alleviate this issue by reallocating more workers to high-yield areas, as well as hiring contract workers for maintenance and upkeep work.

“Management believes this shortage will only be resolved in the second half of 2022 (2H22).

“If this is prolonged up to the start of the peak season, Sarawak Oil Palms may face another round of under-optimisation of its crops.”

As such, the research firm revised its FY22 to FY24 growth to minus 4.9 per cent to 9.6 per cent.

Overall, although no disclosures were given, RHB Investment Bank believed downstream margins remained robust, given the rising CPO price environment.

“We expect better quarters to come, as its downstream expansion is set to be completed in 2H22 – where the focus is on producing higher-quality, tailored refined products for customers.”