Overview. Adjusted for fair value changes in biological assets and derivatives financial instruments as well as unrealised foreign exchange totalling a gain of RM11.12m versus RM5.29m in 3Q20, SOP’s 3Q21 core PBT increased 62% yoy to RM164.3m from RM101.6m in 3Q20. This was due to higher profit contribution from palm oil segment on account of higher ASP realised of palm products sold as well as lower finance costs of RM8.7m as opposed to RM10.4m incurred in 3Q20. On quarterly basis, core PBT increased 13% qoq, on the back of 37% increase in revenue to RM1,301.5m, resulted from higher ASP realised of palm oil products sold and increase in sales volume of palm products.

Against estimates: Above. 9M21 core profit came-in above ours and consensus’ estimates. Revenue and earnings increased 57% and 86% respectively to RM3,038.9m and RM280.1m, resulting from higher profits contribution from palm oil segment as margins increase steadily to 15.5% from 14.4% registered in 9M20 (Table 2 and 3).

Dividend. The Board has approved an interim DPS of 4sen on 25 Nov 2021 (3Q20: Nil) for FY21 – translating to DY of 1.1%.

Outlook. We believe the increasing higher CPO price should benefit SOP, as its spot strategy and minimum forward sales of its own crops has widened its ability to ride on rising spot price - 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 RM4.75, based on P/BV of 0.9x and target BV/share of RM5.20. Following this result, we revised our FY21 and FY22 earnings forecast higher to RM368.1m and RM248.4m respectively from RM292m and RM238m previously as we revisit our assumptions on ASP of palm products, margins, costs and expenses including tax and levy to be more reflective to current and future expectations. We have raised our FY21/FY22 average selling price forecast for CPO to RM4,380/MT and RM3,200/MT respectively from RM4,000/MT and RM3,000/MT previously.

Source: BIMB Securities Research - 29 Nov 2021