• SOP’s reported a core PATAMI of RM31.1m in 1Q18, which is below ours and consensus’ estimates.

• The uninspiring results was due to lower ASP realized of palm products, as experienced by other plantation companies.

• Core PBT was 31% lower yoy to RM42.8m as margin was squeezed by lower average realized price and transacted palm products volume.

• With the challenging business prospect moving forward, we revised lower our earnings forecast for FY18 and FY19 with new TP of RM4.96 (RM6.00 previously).

Earnings below expectations

SOP’s 1Q18 revenue and core PBT dipped 17% and 31% respectively to RM904.4m and RM42.8mm as lower transacted palm products and average realised price dragged the earnings lower. Higher finance costs of RM14.5m (+56% yoy) and administrative expenses (+17% yoy) contributed to the lower results. The higher production during the period failed to offset the lower ASP of palm products. Hence, PBT margin fell to 4.2% from 9.4% recorded in 1Q17.

Dragged by lower production and ASP

On qoq basis, adjusted PBT dropped 49% as there was a decrease in production and palm products average selling price realised. FFB, CPO and PK productions dropped 21%, 12% and 12% respectively to 285.6k MT, 88.9k MT and 19.2k MT; whilst ASP realised of PO products and PK products slumped 7% and 10% respectively to RM2,555.MT and RM2,583/MT.

Change in earnings forecast

We revised our earnings forecast for FY18 and FY19 lower by 17% and 12% respectively to RM177m and RM195m, as we adjusted our production and ASP of palm products assumptions. We are still positive on SOP given good yield potential from sizeable planted land bank and crops profile (young age profile of 9.9 years) as we believe the improvement in FFB production will partially offset the anticipated lower palm product prices moving forward..

Maintain BUY

Changed Target Price to RM4.96 (RM6.00 previously) based on SOP’s 5-years average PER 16x on FY18F EPS.

Source: BIMB Securities Research - 24 May 2018