Monday, September 5, 2011

SOP ... Sep11

Inet Research.

1. 2QFY11 Results Highlight
 - Driven by higher CPO prices and higher production output, SOPB’s turnover and net profit surged by 83.0% and 132.2% to RM288.2m and RM68.9m respectively in 2QFY11.

- Based on MPOB data, CPO prices averaged about RM3,344/mt (2QFY11) as compared with
RM2,527/mt (2QFY10), representing a strong 32.4% increase over the same period. Hence, SOPB also
enjoyed a better operating margin of 39.5% in 2QFY11 as compared with 28.9% in 2QFY10.

- Profit performance was also boosted by a 53.2% increase in CPO production output to 85,317 mt in
2QFY11 from 55,696 mt in 2QFY10. This was attributed to its favourable palm profile as 51% of its
planted areas consist of young and prime crops. In addition, another 43% of total planted areas comprise
immature palms.

1HFY11 Results Highlight

- The strong growth in both turnover and net profit for 1HFY11 was driven by higher CPO prices and
production output.

- Based on MPOB data, average CPO prices posted a 38.3% increase from RM2,545/mt (1HFY10) to
RM3,518/mt (1HFY10). The CPO production output achieved by SOPB also grew by 43.5% to 143,556
mt in 1HFY11.

2. Earnings Outlook
- Going forward, backed by its favourable age profile, production yield will continue to improve as
immature areas coming into maturity as well as rising yield of the newly matured palms.

- Although CPO prices have broadly been in a declining trend this year, it still remains above RM3,000/mt.
Hence, we are still keeping our assumption of average CPO price of RM3,100/mt in our FY11 and FY12
forecasts respectively.

3. Valuation and Recommendation
- Annualised 1HFY net profit is 36% above our earnings forecast for FY11. This is attributed to the higher
average CPO prices against our assumption and the higher CPO production output. We have increased
our net profit forecast by 13% and 11% for FY11 and FY12 to reflect the better production output while
keeping our assumption of average CPO price.

- We are maintaining our Buy recommendation on SOPB for its favourable oil palm profile and
undemanding P/E valuation. Its current P/E valuation of 8.0x for FY12 is at a discount as compared with
plantation sector of 13-14x. We have increased our target price to RM5.20 based on a target P/E of 10x
for FY12.

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