SOP registered 9MFY12 earnings of RM134.2m (-33.3% y-o-y), falling short of estimates. Weak selling prices, challenging refining margins and steeper fertilizer costs hampered profits, while over-conservatism in its refinery business dealings lowered sales volumes. Its FFB production growth remains one of the best, nonetheless, with output rising by 11.7% y-o-y in 3Q. Despite the weak earnings, SOP provides particularly good value within the Malaysian plantation space. Its tree age profile is primed for strong near- to medium-term production growth, while valuations are attractive at 15.0x and 9.8x FY12 and FY13 PER. Maintain BUY, with FV of RM7.95.
Below estimates. SOP posted 3QFY12 revenue of RM420.8m (+29.1% y-o-y, +49.4% q-o-q) and earnings of RM40.7m (-46.3% y-o-y, -21.6% q-o-q). The commencement of its maiden refinery in Bintulu boosted revenue but weak CPO prices, unattractive refining margins and higher fertilizer costs suppressed profitability. The same reasons led earnings to contract sequentially despite a 38.5% q-o-q uptick in FFB production. 9MFY12 revenue and earnings came in at RM931.2m (+9.2% y-o-y) and RM134.2m (-33.3% y-o-y), with earnings representing just 60.4% and 62.5% of our and consensus forecasts respectively. In contrast, 9MFY11 represented 82.8% of last year’s full year earnings.
Estates performing reasonably. SOP’s FFB production growth remains one of the best within our Malaysian coverage due to its young trees and good estate management practices. 10M2012 production grew 4.6% y-o-y, an improvement from 9M2012’s 3.1% y-o-y growth. Despite making a commendable recovery so far in Jul-Oct 2012 (+12.9% y-o-y), production is unlikely to match our full-year growth forecast of 10.3%, which implied a stronger 2H2012 growth of 20.5%. We are revising our full-year growth expectations to 5.8%, implying 11.5% production growth in Nov-Dec. 3Q2012 production rose 11.7% y-o-y and 38.5% q-o-q. We expect production to grow by 11.9% in 2013.
Downstream conservatism. What we believe has affected SOP’s profitability and timing of profit recognition the most this year is its maiden venture into the downstream business. Being new to the business, the company was particularly conservative in its business dealings. To prevent defaulting on its refined palm oil sale agreements (it fears that initial glitches with its refinery may result in insufficient refined oil to fulfill its sale orders), the company chose to be conservative by placing a wider time period between production and sale (eg. refined oil is scheduled to be produced in July but sale is scheduled to be in August).
FYE Dec (RMm)
|
FY09
|
FY10
|
FY11
|
FY12f
|
FY13f
|
Revenue
|
533.3
|
725.4
|
1166.3
|
1914.3
|
2910.3
|
Net Profit
|
100.0
|
147.2
|
243.0
|
174.3
|
266.1
|
% chg y-o-y
|
-30.1
|
47.1
|
65.1
|
-28.3
|
52.7
|
Consensus
|
214.5
|
289.0
| |||
EPS
|
23.4
|
34.3
|
56.1
|
40.0
|
61.0
|
DPS
|
3.0
|
4.0
|
5.0
|
3.6
|
5.4
|
Dividend yield (%)
|
0.5
|
0.7
|
0.8
|
0.6
|
0.9
|
ROE (%)
|
12.1
|
15.1
|
20.0
|
12.7
|
16.4
|
ROA (%)
|
7.1
|
8.8
|
11.9
|
7.4
|
9.7
|
PER (x)
|
25.7
|
17.5
|
10.7
|
15.0
|
9.8
|
BV/share
|
1.9
|
2.2
|
2.8
|
3.2
|
3.7
|
P/BV (x)
|
3.2
|
2.7
|
2.1
|
1.9
|
1.6
|
EV/EBITDA (x)
|
14.8
|
9.9
|
6.3
|
8.3
|
5.7
|
Selling at lower prices. SOP’s refinery came on stream in June, and this delay in sale meant that most of its oil was sold at the later part of 3Q2012 (based on prices at the later part of 3Q2012).CPO prices were weaker in the later part of 3Q than at the beginning of 3Q, so SOP is seeing substantially lower average selling prices (ASPs) compared to the Malaysia Palm Oil Board (MPOB) average (please see Figure 1). SOP has also chosen to agree to sell less than what it expects to produce. This is again a conservative measure due to fear that glitches at its new refinery will cause it to not be able to fulfill its sale agreements.
Figure 1: SOP’s 3QFY12 realized CPO price is below average MPOB prices
Source: MPOB, Company
Figure 2: SOP’s 2012 FFB production growth ahead of peers
Source: Companies
Still a good pick. We are cutting our FY12 and FY13 forecasts by 21.5% and 14.4% respectively in view of our reduced production and realized price expectations. Our FV is hence slashed to RM7.95, based on 13.0x FY13 PER. Despite the industry-wide weak earnings, SOP provides particularly good value within the Malaysian plantation space. It possesses one of the best tree age profiles for near- and medium-term production growth while trading at valuations below industry benchmarks. Maintain BUY.
Results Table (RMm)
FYE Dec
|
3Q12
|
2Q12
|
Q-o-Q chg
|
YTD FY12
|
YTD FY11
|
Y-o-Y chg
|
Comments
|
Revenue
|
420.8
|
281.6
|
49.4%
|
931.2
|
852.7
|
9.2%
| |
EBITDA
|
73.6
|
87.5
|
-15.9%
|
234.0
|
339.5
|
-31.1%
| |
Depreciation
|
-14.8
|
-15.5
|
-4.2%
|
-45.3
|
-43.0
|
5.4%
| |
Net interest expense
|
0.2
|
1.4
|
-88.7%
|
2.8
|
2.8
|
0.5%
| |
Associates
|
0.0
|
0.0
|
nm
|
0.0
|
0.0
|
nm
| |
PBT before EI
|
58.9
|
73.3
|
-19.7%
|
191.5
|
299.3
|
-36.0%
| |
EI
|
2.2
|
0.0
|
nm
|
0.3
|
-1.1
|
nm
| |
PBT
|
61.1
|
73.4
|
-16.7%
|
191.8
|
298.1
|
-35.7%
| |
Tax
|
-13.9
|
-18.5
|
-24.8%
|
-46.8
|
-77.5
|
-39.6%
| |
MI
|
-4.3
|
-3.0
|
45.2%
|
-10.5
|
-20.6
|
-49.0%
| |
Reported Net Profit
|
42.9
|
51.9
|
-17.4%
|
134.5
|
200.0
|
-32.8%
| |
Core Net Profit
|
40.7
|
51.9
|
-21.6%
|
134.2
|
201.2
|
-33.3%
| |
Core EPS (sen)
|
9.32
|
11.89
|
-21.6%
|
30.79
|
46.52
|
-33.8%
| |
DPS (sen)
|
0.0
|
0.0
|
0.0
|
0.0
| |||
EBITDA margin
|
17.5%
|
31.1%
|
25.1%
|
39.8%
| |||
NTA/share (RM)
|
2.78
|
2.78
|
2.78
|
2.68
| |||
FFB production
|
267,051
|
192,757
|
38.5%
|
622,927
|
604,183
|
3.1%
| |
CPO production
|
99,444
|
77,224
|
28.8%
|
239,479
|
231,272
|
3.5%
| |
PK production
|
20,185
|
14,854
|
35.9%
|
49,722
|
47,810
|
4.0%
| |
Avg MPOB Price
|
2,851
|
3,218
|
-11.4%
|
3,095
|
3,360
|
-7.9%
| |
Realized CPO price
|
2,669
|
3,125
|
-14.6%
|
2,869
|
3,177
|
-9.7%
| |
Realized PK price
|
1,412
|
1,740
|
-18.9%
|
1,600
|
2,263
|
-29.3%
| |
EARNINGS FORECAST
FYE Dec (RMm)
|
FY09
|
FY10
|
FY11
|
FY12f
|
FY13f
|
Turnover
|
533.3
|
725.4
|
1166.3
|
1914.3
|
2910.3
|
EBITDA
|
178.9
|
267.4
|
417.0
|
317.7
|
461.6
|
PBT
|
134.8
|
219.6
|
362.4
|
255.4
|
389.9
|
Net Profit
|
100.0
|
147.2
|
243.0
|
174.3
|
266.1
|
EPS
|
23.4
|
34.3
|
56.1
|
40.0
|
61.0
|
DPS
|
3.0
|
4.0
|
5.0
|
3.6
|
5.4
|
Margin
| |||||
EBITDA (%)
|
33.5
|
36.9
|
35.8
|
16.6
|
15.9
|
PBT (%)
|
25.3
|
30.3
|
31.1
|
13.3
|
13.4
|
Net Profit (%)
|
18.8
|
20.3
|
20.8
|
9.1
|
9.1
|
ROE (%)
|
12.1
|
15.1
|
20.0
|
12.7
|
16.4
|
ROA (%)
|
7.1
|
8.8
|
11.9
|
7.4
|
9.7
|
Balance Sheet
| |||||
Fixed Assets
|
1017.7
|
1184.2
|
1385.7
|
1584.5
|
1694.1
|
Current Assets
|
395.6
|
480.5
|
664.0
|
780.1
|
1062.8
|
Total Assets
|
1413.3
|
1664.7
|
2049.7
|
2364.6
|
2756.9
|
Current Liabilities
|
163.1
|
197.7
|
232.0
|
330.0
|
495.5
|
Net Current Assets
|
232.5
|
282.8
|
432.0
|
450.1
|
567.3
|
LT Liabilities
|
326.7
|
370.5
|
477.2
|
518.0
|
476.1
|
Shareholders Funds
|
828.8
|
974.2
|
1217.6
|
1376.4
|
1618.8
|
Net Gearing (%)
|
net cash
|
net cash
|
net cash
|
net cash
|
net cash
|
Source: OSK
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