• Overview. SOP’s 2Q19 revenue and PBT dropped 24% and 93% yoy respectively to RM590.2m and RM1.4m as lower volume of palm products transacted and ASP realised dragged its earnings lower. On qoq basis, poorer result was predominantly due to lower ASP realised of palm kernel products and lower palm products volume transacted.

• Key highlights. 2Q19 saw FFB, CPO and PK productions dropped 5%, 4% and 0.5% respectively to 307.1K MT, 95.5K MT and 19.9k MT; whilst ASP realised of palm oil and palm kernel slumped 13% and 32% respectively to RM2,052/MT and RM1,394/MT (Table 2).

• Against estimates: below. 1H19 core profit was below ours and consensus’ estimates at 14%/18% of full year forecast. In addition to the decline in ASP realised and lower palm products volume, weaker other operating income of RM7.2m (-72% yoy) and low contribution from property segment also contributed to the lower results.

• Outlook. We believe earnings upside, if any, would still be limited by lower production and ASP realised of palm products. We estimates FFB production to be flat this year, up by only 1% yoy to 1.35m tonnes whilst ASP price of palm oil products to average RM2,100/MT while ASP of PK products is at RM1,640/MT.

• Our call. Maintain HOLD with new TP of RM1.98 (RM2.46 previously) based on FY20’s BV/share of RM3.67 on its current P/BV of 0.54 times. We have revised our FY19 and FY20 earnings forecast lower to RM20.7m and RM48.4m respectively from RM77.9m and RM91.7m previously, as we adjusted lower our production (-3%) and ASP realised of palm products assumptions by an average -25%.

Source: BIMB Securities Research - 26 Aug 2019