• Overview. SOP’s 4Q21 PBT came in higher yoy/qoq to RM249.7m vs. RM92.1m in 4Q20 and RM164.3m in 3Q21, as higher ASP realised of palm oil products and PK sold was more than sufficient to compensate for the lower FFB, CPO and PK production, as well as higher productions costs. The difference between reported PBT and core PBT are fair value changes on biological assets, fair value changes on derivatives financial instruments, impairment loss and unrealized loss/gain on forex.

• Against estimates: Above. FY21 core earnings came in above our and consensus’ estimates. Revenue and core PBT increased 60% and more than 100% respectively to RM4,433m and RM663m, resulting from higher profit contribution from palm oil segment as margins increased steadily to 16.2% from 10.8% registered in FY20 (Table 2 and 3).

• Outlook. We believe that SOP’s earnings upside in this financial year would be limited if the higher ASP of palm products is insufficient to compensate for the risk of likely weaker production and higher operational costs – aided by the possibility of margins squeeze in downstream segment on higher materials costs as well as slow sales and uptake in property segment.

• Our call. Maintain BUY with new TP of RM6.00 against RM4.75 previously, based on P/BV of 1.07x and target BV/share of RM5.60. Following this result, we revised our FY22-FY23 earnings forecast higher to RM351m and RM318m respectively from RM248m-RM223m previously as we revised our assumptions on ASP of palm products, productions, 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 RM4,450/MT and RM3,500/MT respectively from RM3,200/MT and RM2,700/MT previously.

Source: BIMB Securities Research - 24 Feb 2022