SOP posted FY11 earnings of RM243.0m (+61.4% y-o-y) on theback of stronger FFB production (+22%) and higher realized CPO prices (+21%).While 4Q production predictably fell q-o-q due to the yearly seasonalproduction downcycle, significant cost increases saw 4Q earnings disappoint, afirst  after four consecutive quarters ofexpectation-beating results. We are nonetheless raising our FY12 forecast toRM255.9m. Maintain BUY at FV RM7.09.

Falls short. SOPregistered 4QFY11 revenue of RM313.6m (+47.5% y-o-y due to stronger productionand despite weaker palm prices,  -3.8%q-o-q on the back of both lower production and prices). 4Q earnings, meanwhile,dropped to RM43.3m (-10.8% yo-y,  -42.8%q-o-q), the worst quarter for the year. 4Q EBITDA margins contracted 13.2 ppty-o-y and 11.1 ppt q-o-q amid softer prices and higher cost. A higher effectivetax rate of 27.3% (+6.5 ppt q-o-q) also contributed to the q-o-q earningsdecline.  Full year earnings,nonetheless, recorded a 61.4% y-o-y growth to come in at RM243.0m but fell shortof  our forecasts, representing92.3%  of our estimates  but was within consensus (95.7%). Topline wasabove expectations but significant cost increases dampened earnings.

FFB production grows>20%. SOP produced 216k tonnes of FFB in 4Q (+22.4% y-o-y on maturingtrees,  -9.3% q-o-q due to the productionseasonal downcycle). Full year production was 820,997 tonnes (+21.9% y-o-y),1.1% better than our 811,741 tonnes forecast (a forecast we kept since thebeginning of 2011). CPO production, at the meantime, increased by 30.4%compared to 2010.Our expectations are for FFB production to grow by 16.1% inFY12 before rising by 13.2% in FY13 to break the 1-million-tonne mark.

Forecast revision.Despite the poorer than expected 4QFY11 numbers, we are revising our FY12earnings forecast upwards by 8.9% to RM255.9m (+5.3% y-o-y) based on i) a narrowerCPO price discount to MPOB average (from -2% to  -1%) due to its refinery comingon stream, which we think will provide SOP with better pricing power, and ii) higherpalm kernel price assumption (RM1,660 per tonne). We are introducing our FY13 earningsforecast at RM304.8m (+19.1% y-o-y), premised on a higher average CPO priceassumption of RM3,100 per tonne, 13% FFB production growth and initial earningscontribution from its refinery. Following our forecast revision, we revise ourFV to RM7.09 based on 12.0x FY12 PER. Maintain BUY.

Source: OSK188