• Overview. Adjusted for fair value changes in biological assets and derivatives financial instruments as well as unrealised foreign exchange totalling a gain of RM1.1m vs. loss of RM2.5m in 2Q20, SOP’s 2Q21 core PBT increased more than 100% yoy to RM145.5m against RM54m in 2Q20. This was mainly due to higher margins in palm oil segment on account of higher CPO and PK production, and ASP realised of palm products sold as well as lower finance costs of RM8.8m as opposed to RM12.1m in 2Q20. On quarterly basis, core PBT increased 40% on the back of 20% increase in revenue to RM949m, resulted from higher ASP realised of palm oil products sold supported by higher FFB, CPO and PK production.

• Against estimates: Above. 1H21 core profit was above our estimates. Revenue and earnings increased 52% and more than 100% respectively to RM1,737m and RM167.1m, resulting from higher contribution from palm oil segment as margins increase steadily to 19.1% from 14.2% registered in 1H20 (Table 2 and 3).

• Outlook. Given the current scenario of higher palm products prices, we believe that SOP’s earnings upside in the next quarter would be more visible, although there may be margin squeeze in downstream segment on demand and price concerns as well as slow sales and uptake in property segment.

• Our call. Maintain BUY with unchanged TP of RM4.50, based on P/BV of 1.0x and BV/share of RM4.50. Following this result, we revised our FY21/FY22 earnings forecast higher to RM346.5m and RM270.8m respectively from RM287m and RM254m previously as we adjusted our production, ASP of palm products, costs and margins assumptions. We cut our production number by 2% to 1.38m and 1.41m tonnes respectively for FY21/22 whilst raised ASP forecast for CPO to RM3,650/MT for FY21 and RM2,800/MT for FY22 from RM2,950/MT and RM2,500/MT previously.

Source: BIMB Securities Research - 27 Aug 2021