• SOP reported a strong set of 9M17 results with core net profit coming in at RM167.3m, representing 94% of our full year forecast and 88% of consensus.

• Adjusted for unrealized gain on foreign exchange and fair value gain on derivatives financial instruments, core PBT was up 83% yoy to RM254.6m, as revenue surged to RM3.55bn (+14% yoy) due to higher production volume and higher ASP realized of palm oil products and PK products.

• PBT for 3Q17 dropped 14% qoq resulting from decrease in ASP of palm products and provision of ESOS expenses due to the new ESOS scheme offered on 28 Sep 2017.

• On yoy basis, revenue and core PBT was higher by 7% and 31% respectively to RM1.2bn and RM89m on account of higher production volume as well as higher ASP realized.

• We revised higher our earnings forecast for FY17 and FY18, resulting in higher target price of RM6.00 (RM5.87 previously). Maintain BUY.

Earnings above expectation

SOP’s 9M17 revenue and core profit surged 14% and 71% to RM3.5bn and RM167.3m respectively as higher FFB, CPO and PK production (+34%, +25% and 17% yoy) as well as ASP for palm oil products (+16% yoy) and PK products (+8% yoy) contributed to higher revenue and earnings in palm oil segment. Hence, PBT margin improved strongly to 9.5% from 7.4% recorded in 9M16.

Moving forward, performance will be driven by improvement in FFB production that we estimate will partially offset the anticipated lower palm oil product price. We forecast FFB production to hit 1.38m tonnes for FY17 vs. 1.01m tonnes in FY16.

Earnings qoq impacted by RM7m provision of ESOS expenses

On qoq basis, adjusted PBT dropped 14% to RM89m as there was a RM7m provision for ESOS scheme expenses booked during the period as well as decrease in ASP realised of palm oil products. On yoy basis, core PBT was higher by 31% as revenue surged 7% on higher production volumes as well as higher ASP realized.

Positive on SOP outlook, maintain BUY

We revised our FY17 and FY18 earnings forecast higher to RM218m and RM214m respectively from RM178m and RM186m as we adjusted our cost assumption. We continue to like SOP given its 1) young age profile; 2) enlarged planted and unplanted land bank effective FY17; and 3) good yield potential from sizeable planted land bank and favorable crop profile. We revised our target price to RM6.00 (RM5.87 previously) based on SOP’s 5- years average PER 16x and FY18F EPS.

Source: BIMB Securities Research - 30 Nov 2017