• Overview. 1Q20 PATAMI increased more than 100% yoy to RM71.2m due to higher contribution from both plantation and property segments aided by lower cost of sales. Margin in plantation segment improved to 18.3% from 1.4% in 1Q19 as higher ASP realised of palm oil products sold mitigated lower volume of palm products transacted. On quarterly basis, profit rose 46% mainly due to higher ASP of PO and PK products realised and FV gain on derivatives during the period.
•  Against estimates: above. 1Q20 core profit was above ours estimates. Although revenue was lower yoy/qoq to RM518.1m on account of low palm product volume transacted, core PATAMI increased more than 100% yoy to RM41m, resulting from higher margins recorded for both palm oil and property segments. The decline in cost of sales and lower effective tax rate also contributed to the better results.
• Outlook. Given the current scenario of weaker palm products prices, we believe that SOP’s earnings upside in the next couple of quarter would be limited. This would be added by the estimated FFB production that is expected to increase by only 2% yoy to 1.38m tonnes in FY20.
• Our call. Maintain BUY with new TP of RM3.22 (RM3.72 previously) based on SOP’s historical 5-yrs average PER of 18x and FY20F EPS. We tweaked our FY19 and FY20 earnings forecast lower to RM102m (-6%) and RM122m (-1.5%) respectively, as we expect weaker performance in subsequent quarters on account of lower ASP of palm product prices anticipated. We reduced our FY20/FY21’s CPO price forecast assumption from RM2,480/MT to RM2,300/MT/RM2,400/MT respectively.

Source: BIMB Securities Research - 27 May 2020