• SOP recorded a core PATAMI of RM73.3m in FY18, as revenue fell 28% to RM3.53bn mainly due to lower ASP realized of palm products and lower volume of palm products transacted.

• Overall, earnings came in within our and consensus’ expectation.

• On quarterly basis, core PATAMI was RM15m vs. RM21m in 3Q18 as a result of lower margins in plantation and property segments.

• We maintain our earnings forecast for FY19 and FY20 with TP of RM2.46 for SOP. Maintain HOLD.

Earnings within expectations

SOP’s FY18 revenue and PBT plunged 28% and 70% respectively to RM3,532.9m and RM107.1m mainly due to lower plantation margins attributed to lower ASP realised and lower volume of palm products transacted. Higher finance costs of RM64.5m (+12% yoy) also contributed to the weak results. The improved production during the period failed to offset the decline in ASP of palm products. Hence, EBITDA margin fell to 8.3% from 10.8% recorded in FY17.

Dampened by lower production and ASP of palm products

On qoq basis, PBT decreased 36% to RM19.6m, as margins was squeezed due to 1) lower ASP of palm products, 2) higher costs of sales of RM954m (+16%) and, 3) higher finance costs of RM64.5m (+37.4%) as well as depreciation and amortisation of RM144.8m vs. RM106.7m captured in 3Q18. Nonetheless, revenue was higher by 13% qoq to RM983m due to higher sales volume transacted.

No change in earnings forecast

Although we still see limited catalyst in 2019 with plantation companies likely to continue to be vulnerable to several challenges, we maintain our FY19 and FY20 earnings forecast to RM78m and RM92m respectively. We believe the improvement in FFB production would partially offset the anticipated lower palm product prices moving forward. We forecast CPO price (local delivery) to trade within RM2,000/MT – RM2,300/MT in 1Q19 versus RM2,393.50/MT – RM2,550.50/MT in 1Q18; and SOP’s FFB production will hit 1.4m tonnes in FY19F vs. 1.34m tonnes in FY18.

Maintain to HOLD with TP of RM2.46

We maintain our target price of RM2.46 with HOLD recommendation. The valuation is based on SOP’s historical 5-yrs average PER of 18x and FY19F EPS.

Source: BIMB Securities Research - 27 Feb 2019