Advertisements

In a solid balance sheet position

Undervalued. BUY!

While SOP has revised down its FFB output guidance for FY21E, it is still anticipating better HoH output in 2H21. And SOP will likely continue to enjoy the high CPO ASP thus far in 2H21 given its minimal forward sales. We are keeping our earnings forecasts, and TP of MYR5.80 on unchanged 14x FY22E PER peg, its 5Y mean. It trades at just 8x FY21E PER and unadjusted EV/ha of MYR28,000 (near replacement cost). BUY.

Advertisements

Briefing takeaways

We hosted a briefing for SOP last week. Key takeaways: (1) SOP has minimal forward sales. It will continue to reap the benefits of high spot CPO prices presently; (2) FY21E’s FFB output target is now revised down to 1.25m-1.30mt (MKE: 1.32mt) from 1.40mt due to shortage of harvesters. This revised forecast translates to 1H:2H output ratio of 47- 49:51-53; (3) Overall, SOP is experiencing a 30-35% shortage in workers; (4) It has decided to stop its replanting plan for 2021 (2020: 419 ha) to capture the high CPO ASP; (5) SOP expects to be in a net cash position by year end (June-21: 6% net gearing); (6) With improving balance sheet and limited capex planned (FY21E: MYR100m-150m), it will likely establish a dividend policy soon to reward shareholders; (7) Downstream margins will be more challenging in 2H21 compared to 1H21.

Advertisements

Major shareholder has further raised its stake to 46%

SOP’s major shareholder, the Shin Yang Group, has further raised its stake to 46.4% in Apr 2021 (May 2020: 45.3%; Mar 2019: 43.3%) whereas the State Government of Sarawak has maintained its 2nd spot at 28%.

Advertisements

SOP is clearly undervalued

Although we doubt there is any impending plan to privatise SOP, the gradual accumulation of stocks by the major shareholder is a testament of SOP’s undervaluation. We believe the formulation of a generous dividend policy will help to re-rate SOP’s equity value over time. The market is currently attaching zero value for the property development
potential of its 4,858ha Taniku Estate, located at the fringe of Miri city.