Sarawak Oil Palms Bhd
(Feb 28, RM3.56)
Maintain buy at RM3.68 with target price of RM5.22: Sarawak Oil Palms Bhd's (SOP) FY10 earnings of RM147.2 million were 5.5% above our expectations of RM139.5 million. The difference was stronger than expected because SOP's realised palm oil prices buoyed its revenue ahead of our forecast by 5.7%.

At earnings before interest, taxes, depreciation, and amortisation (Ebitda) level, the company achieved RM269.7 million, in line with our RM267.4 million forecast. Compared with FY09, earnings surged 47.1% while profit before tax and Ebitda climbed 63.8% and 50.8% respectively.

Revenue grew 36%, thanks to significantly higher average palm oil prices and a 5.8% increase in crude palm oil production. Earnings in 4Q jumped 38.3% from a year earlier but fell 8.8% from 3Q as sales and fresh fruit bunch production tapered off.

SOP should experience stronger growth from FY11 onwards as contribution from its maturing trees increases. Some 57.2% of its mature trees are in the young-mature category and will continue to record production growth. The real kicker will come in FY12 as the trees planted in 2007 and 2008 start contributing materially.

SOP achieved 4,688ha of new planting, bringing its planted area to 58,940ha. Acquiring new land should not be too difficult given its ties with Sarawak's state-owned Pelita Holdings, but SOP is currently focused on expanding its downstream activities.

Our FY11 earnings forecast remains largely unchanged at RM188.2 million from RM188 million, representing 27.9% growth from FY10.

We revise our FY12 earnings forecast upwards by 10.1% to RM170.6 million from RM155 million on expectations of better realised palm oil prices. We maintain our 'buy' call and our target price of RM5.22 based on 12 times FY11 earnings per share (EPS). The stock is currently trading at only 8.5 times FY11 EPS. ' OSK Research , 28 Feb


This article appeared in The Edge Financial Daily, March 1, 2011.