• Maintain HOLD (TP: RM3.00). Sarawak Oil Palms (SOP) 1Q24's core PATAMI of RM90mn (+81% YoY) exceeded both our and consensus expectations, accounting for 38% and 32% of the full-year forecast, respectively. The deviation from our projection was mainly due to lowerthan-expected operating expenses. Consequently, we have adjusted our FY24F earnings forecast higher to RM297mn from RM238mn previously. We expect sustainable earnings in the upcoming quarters, supported by better production and sales volume, though this might be offset by lower palm product prices. Maintain a HOLD call with a higher TP of RM3.00 (previously RM2.74), based on the historical 3-year average P/BV of 0.7x and FY24/25 average BV/share of RM4.28.

• Key highlights. SOP's 1Q24 revenue increased by 10% YoY, mainly contributed by higher FFB output and sales volume. Core PATAMI jumped by 81% YoY to RM90mn, with margins improving by 2.7 ppts YoY to 6.8%, driven by lower production costs, likely due to reduced fertilizer prices. Nevertheless, on a QoQ basis, both revenue and core PATAMI fell by 9.8% and 13.5%, respectively. The results were dragged down by lower FFB and CPO production, despite the higher ASP of palm products (refer table 3).

• Earnings Revision. We raised our FY24 earnings forecasts to RM297mn from RM238mn previously, after factoring in lower production costs and housekeeping changes. We also introduce FY25F earnings with a CPO price assumption of MYR3,500 per tonne.

• Outlook. We remain confident in SOP’s ability to grow its earnings over the long-term basis. Better production and sales volume are expected in the upcoming quarters, though this might be offset by lower CPO prices due to higher global production and increased competition from other edible oils, especially soybean oil. As for the downstream segment, SOP expects improvement in this segment backed by a higher utilisation rate and better product mix.

Source: BIMB Securities Research - 24 May 2024