• Maintain HOLD (TP: RM2.74) Sarawak Oil Palms (SOP) FY23’s core net profit of RM289.8mn (-42% YoY) exceeded both our and consensus expectations, accounting for 124% and 128% of the full-year forecast, respectively. The deviation from our projection was mainly due the lower forecast for the productions of palm products and an overprovision made for operating expenses. In light of these results, we have adjusted our FY24 earnings forecasts higher to RM238mn from RM208mn previously to be more reflective of our future expectations. We expect sustainable earnings in the upcoming quarter, supported by better productions and sales volume, though this might be offset lower by downstream margins and the possibility of lower-than-expected palm products prices realised. Maintain a HOLD call with a new TP of RM2.74 (RM2.50 previously), based on historical low 3-year average P/BV of 0.65x and FY24/25 average BV/share of RM4.22.

• Key highlights. SOP's earnings performance for 4Q23 has gained traction, doubling to RM104mn. This increase is attributed to improvements in FFB and CPO production, along with higher volumes of palm products sold, which helped offset the drop in the ASP of palm products (Table 3). Consequently, the company achieved a better revenue of RM1,469mn, marking a 15% QoQ and 28% YoY increase.

• Earnings Revision. After accounting for our adjustment on palm products prices and production, we raised our FY24 earnings forecasts higher to RM238.4mn from RM208.1mn, previously.

• Outlook. Despite the continuous challenges and obstacle faced by the industry, we remain convinced in SOP’s ability to grow its earnings on longterm basis. Downside risks to our earnings forecast include: 1) lower-thanexpected production growth, 2) a possibility of significant pullback in palm product prices, and 3) higher operational costs. These concerns are compounded by the possibility of margin squeeze resulting from elevated costs and sluggish sales in the downstream segment, as well as slow sales and uptake in the property segment.

Source: BIMB Securities Research - 1 Mar 2024