SARAWAK OIL PALMS BHD
By UOBKayHian Rating: Hold Target price: RM3.70
SARAWAK Oil Palms’ (SOP) share price jumped 16.1% since Aug 28. UOBKayHian said the price rally could have captured its strong second quarter 2017 results, adding that SOP could benefit from the current high crude palm oil (CPO) prices as it is mostly engaged in spot sales.
“However, we reckon share price upside could now be limited as second half 2017 results could be weaker than the first half of 2017’s, as fresh fruit bunches (FFB) production is expected to be lower in the coming months.
“We increase 2017 net profit forecast marginally by 1.9% to factor in higher CPO price assumption of RM2,700 per tonne, but partly offset by lower FFB production growth forecast.”
The research house said the average yearto-date CPO price was RM2,854 per tonne.
“We are expecting CPO prices at RM2,500 to 2,700 per tonne in the fourth quarter of 2017. Thus, the average CPO price for 2017 is likely to be higher than our earlier forecast of RM2,600 per tonne. We understand that SOP is mainly engaged in spot sales.
“Thus, it could benefit from current high CPO prices. Hence, we raise our CPO average sellling price assumption for SOP to RM2,700 per tonne (from RM2,600 per tonne).”
UOBKayHian added that third quarter 2017 results could be weaker quarter-on-quarter mainly due to lower CPO average selling price despite higher FFB production.
“Fourth quarter 2017 results are likely to weaken further quarter-on-quarter as CPO average selling price is expected to be lower and FFB production could also have dropped quarter-on-quarter, as we enter the seasonally weak production period. All in all, second half 2017 results could be weaker than the first half of 2017.”
Additionally, it was pointed out that SOP, like other plantation companies, is facing a labour shortage.
“We understand the labour shortage for SOP is more severe than in the previous years. The labour shortage could affect harvesting activity in the short term as well as for maintenance work, such as fertiliser application, could affect future production.”