15 August 2008
inet research
Price: RM5.35
Market Capitalisation: RM1,092.0m
Recommendation: BUY
Sarawak Oil Palms Berhad (SOPB)’s turnover and net profit grew by 114% and 130% yoy to RM188.1m and RM44.2m in 2QFY08.
The strong net profit performance was attributed to higher CPO and PK price realized in 2QFY08 and higher CPO production.
Based on SOPB's monthly production figures, the production output of CPO increased by 45% in 2QFY08 to 52,522 mt, underpinned by improved FFB yield and young planted oil palms. During the same period, average CPO price rose by 45% to RM3,512/mt based on MPOB data .
Based on SOPB's monthly production figures, the production output of CPO increased by 45% in 2QFY08 to 52,522 mt, underpinned by improved FFB yield and young planted oil palms. During the same period, average CPO price rose by 45% to RM3,512/mt based on MPOB data .
Underpinned by strong CPO prices (up by 60.5% in 1HFY08 based on MPOB data) and higher CPO production output (up by 39.1% to 95,371 mt), SOPB’s net profit surged by 194.2% to RM87.7m for 1HFY08.
We have downgraded our earnings forecast to reflect the lower CPO price for FY09 and rising operating costs.
3. Recommendation
Despite the earnings downgrade, we are maintaining our Buy recommendation on the stock. The recent sell-off in CPO prices, triggered by softening crude oil price, is too extreme. Since Jul 08, CPO prices have dropped from around RM3,600/mt to about RM2,500. In addition, prior to this downcycle, SOPB’s valuation has always been at a discount to average P/E valuation of the plantation sector. At the current share price of RM5.35, the stock is trading at a P/E of 7.6x for FY09.
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