• Overview. SOP’s 1Q22 core PBT came in higher yoy/qoq to RM262.2m vs. RM103.9m in 1Q21 and RM249.7m in 4Q21, 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 and unrealized loss/gain on forex.

• Against estimates: Above. SOP’s 1Q22 core earnings came in above our and consensus’ estimates.

• Outlook. Upside risks for SOP’s earnings in this financial year would be limited if the higher ASP of palm products is insufficient to compensate for the risk of weaker production and higher operational costs – to be added by the possibility of margins squeeze in the downstream segment on higher materials costs as well as slow sales and uptake in the property segment. Nonetheless, we are optimistic on the company's ability to record strong earnings in the upcoming quarter given the current higher CPO price trend. However, we reckon that this may not be sustainable in the long run as PO price performance is influenced by the supply-demand dynamics of edible oil in the market and how soon we can resolve the labour supply issue. Hence, we advise investors to take any stock price rally as an opportunity to lock in their profit.

• Our call. Following this result, we revised our FY22-FY23 earnings forecast higher to RM571m and RM412m respectively from RM351m and RM318m previously as we revised our assumptions on ASP of palm products, margins, costs and expenses to be more reflective to our current and future expectations - to arrive at a new TP of RM6.16 from RM6.00 previously based on historical 6-years average P/B of 1.1x and BV/share of RM5.60. Off note, we have raised our FY22 ASP forecast of PO products higher to RM5,433/MT from RM4,456/MT previously (1Q22: RM6,308/MT). As SOP’s share price has risen by 72% YTD, we are now seeing the stock reaching closer to our valuation given a limited 2.7% upside from the current price. Hence, we changed our recommendation from a BUY to a HOLD.

Source: BIMB Securities Research - 24 May 2022