• Overview. 4Q19 PATAMI increased more than 100% to RM48.9m. The margin in plantation segment improved to 10.5% from 4.6% in 4Q18 as higher ASP realised of palm oil products sold mitigated a lower volume of palm products transacted. On quarterly basis, profit rose 58% mainly due to higher ASP of PO and PK products realised couple with higher palm products volume transacted during the period.

• Against estimates: above. FY19 profit was above ours and consensus’ estimates. Although revenue was lower by 19% to RM2.9bn on account of low palm product volume transacted, bottom-line increased 44% to RM89.8m resulting from higher margin for palm products transacted. The decline in cost of sales and lower effective tax rate contributed to the better results.

• Outlook. We believe earnings upside would still be limited by lower production and slower demand. Nonetheless, improving palm products prices that are currently trading above last year’s price, in our view, would compensate for the slight increase in production expected this year. We estimate FFB production to rise by only 2% yoy to 1.38m tonnes in FY19.

• Our call. Maintain TP of RM3.72 based on P/B of 1.0x and 2-years average BV/share of RM3.72. As SOP’s share price has fallen by 20.5% YTD, we now see value emerging in the stock with an upside of 14% from current price. Upgrade to BUY.

Source: BIMB Securities Research - 2 Mar 2020