• Overview. SOP’s 3Q20 PBT increased more than 100% yoy and qoq to RM106.9m attributed by higher contribution from plantation segment on higher average selling price of palm products realised, compounded by higher contribution from property segment as well as lower finance costs and higher FV gain on biological assets amounting to RM8.59m. Margin of plantation segment improved to 14.6% from 10.9% in 2Q20 and 10.5% in 3Q19 whilst property margins increased to 35.8% from 12.3% and 31.4% registered in 2Q20 and 3Q19 respectively.

• Against estimates: above. 9M20 core profit was above our estimates. Although revenue was lower yoy to RM1.94bn (-5% yoy) on account of low palm product volume transacted, PATAMI increased more than 100% yoy to RM183.4m, resulting from higher ASP of palm products realised and FV gain on derivatives amounting to RM27.1m. The decline in cost of sales and a tad lower effective tax rate also contributed to the better results.

• Outlook. We believe that SOP’s earnings upside in the next quarter would be visible, given its FFB production is on track to reach our target of 1.37m tonnes in FY20.

• Our call. Maintain TP of RM4.30 (based on P/BV of 1.0x and SOP’s FY21 BV/share) with revised earnings forecast for FY20/FY21 to RM222m and RM292m respectively from RM154m and RM193m previously, as we adjusted lower our costs of sales and tweaked our FFB processed and CPO production number lower with higher ASP of palm product anticipated. SOP’s share price has risen by 104% since its lowest in March and we now see the stock reaching closer to our valuation with an upside of 8.6% from current price. Hence, we changed our recommendation from BUY to HOLD. Accumulate on weakness.

Source: BIMB Securities Research - 27 Nov 2020