• Maintain HOLD (TP: RM2.50) Sarawak Oil Palms (SOP) 9M23’s core net profit of RM182mn (-60% YoY) exceeded both our estimates and consensus expectations, accounting for 92% and 77% of the full-year forecast, respectively. The deviation from our projection was mainly due the lower forecast for the average selling price (ASP) of palm products and an overprovision made for operating expenses. In light of these results, we have adjusted our FY23 and FY24 earnings forecasts higher to RM234mn and RM208mn, respectively, from RM197mn and RM183mn previously. We expect further improve in earnings in the upcoming quarter, supported by improved productions and sales volume. This is expected to offset lower downstream margins and the possibility of lower-than-expected palm products prices realised. Hence, upgrade to a HOLD call with a new TP of RM2.50 (RM2.05 previously), based on historical low 3-year average P/BV of 0.6x and FY24/25 average BV/share of RM4.17.

• Key highlights. SOP's earnings performance for 3Q23 has gained traction, nearly doubling to RM94.6mn. This increase is attributed to improvements in FFB and CPO production, along with higher volumes of palm products sold, which helped offset the slight drop in the ASP of CPO (Table 3). Consequently, the company achieved an improved revenue of RM1,273mn, marking an 8% QoQ increase. In response to this positive performance, the Board has approved an interim DPS of 4sen for FY23. This DPS is equivalent to a 1.6% DY at the current market price.

• Earnings Revision. After accounting for our adjustment on palm products prices and production costs, we raised our FY23/FY24 earnings forecasts higher to RM234mn (+19%) and RM208mn (+14%), respectively.

• Outlook. Downside risks to our earnings forecast include: 1) production continuing to be below potential due to lower yield, 2) a possibility of significant pullback in palm product prices, and 3) higher operational costs. These concerns are compounded by the possibility of margin squeeze resulting from elevated costs and sluggish sales in the downstream segment, as well as slow sales and uptake in the property segment.

Source: BIMB Securities Research - 30 Nov 2023