• Maintain HOLD (TP: RM3.70). Sarawak Oil Palms Berhad (SOP) 9M24's core PATAMI surged by 61% to RM292.6mn, primarily driven by higher palm production and realised average selling prices, along with significantly lower production costs. The results exceeded our expectations but were within consensus full year estimates, accounting for 98% and 79% respectively. The deviation was mainly due to lower-than-expected production costs. Consequently, we revised higher our FY24/FY25F earnings to RM408mn/RM420mn from RM297mn/RM269mn, after factoring in higher CPO price and lower production costs assumptions. We expect sustainable earnings in the upcoming quarters, supported by expected higher palm product prices and stable production and sales volume. SOP declared a special 2nd interim DPS of 7 sen, bringing YTD FY24 DPS to 11sen (FY23: 10sen). We estimate a full year FY24 DPS of 14 sen (30% payout ratio), translating to 4.1% yield. Maintain a HOLD call with a higher TP of RM3.70 (previously RM3.00), based on the 3-year average P/BV of 0.8x pegged to FY25F BV/share of RM4.59. Accumulate on dips.

• Key Highlights. SOP's 3Q24 revenue rose by 9% YoY to RM1.3bn, driven by higher palm product prices (CPO: RM4,205/MT, +9% YoY; PK: M2,960/MT, 31% YoY), which offset the slightly lower production (Table 3). Core PATAMI climbed by 26% YoY to RM106.7mn, with margins improving by 1.1 ppts YoY to 7.7%, primarily due to lower production costs, likely attributed to reduced fertilizer prices.

• Earnings Revision. We have revised our FY24/FY25 earnings forecasts upward to RM408mn/RM420mn from RM297mn/RM269mn, factoring in higher CPO price assumptions, reduced CPO production cost estimates and housekeeping adjustments.

• Outlook. We remain optimistic about SOP’s long-term earnings growth potential. The Plantation segment outlook will be supported by elevated CPO prices and stable production. Although the downstream segment remains challenging due to intense competition, SOP expects gradual improvements driven by higher utilization rates and better product mix.

Source: BIMB Securities Research - 29 Nov 2024