Strong 1Q results may not be repeated
1Q22 results exceeded our/consensus expectations. Besides benefitting from higher palm oil products prices, 1Q results was also boosted by other operating income of MYR37m that is unlikely to be recurring. 1Q22 may have been SOP’s best quarterly results for FY22E as we expect lower CPO ASP in 2H coupled with rising cost pressures (ie higher minimum wage and fertiliser cost), but mitigated by seasonally higher output. We maintain our HOLD with unchanged TP of MYR6.52 on 13x FY23E PER, its 5Y mean. We prefer KLK MK (BUY, CP: 26.42, TP: 30.70).
1Q22 palm oil price achieved mirrors spot prices
1Q22 core PATMI of MYR191m (+157% YoY, -12% QoQ) met 40%/48% our/street full-year forecasts. 1Q22 strong performance was boosted by high palm oil products ASP achieved of MYR6,308/t (+62% YoY, +15% QoQ) and PK ASP of MYR5,128/t (+78% YoY, +20% QoQ) which more than offset weaker FFB output (-14% YoY, -20% QoQ). SOP continues to enjoy palm oil prices that mirror spot prices due to its limited forward sales in 2022. We understand its downstream margin was positive in 1Q22. And we gather SOP has applied <25% of its full-year fertilising requirement in 1Q22. It has yet to secure its fertiliser requirements for 2H.
Labour shortage poses risk to FY22E output growth
Due to continued labour shortages, 1Q22 FFB output fell YoY and met just 21% of our full-year forecast (Figs.2-3). Without foreign workers returning soon, it is hard to envisage a significant improvement in FFB output for FY22E. Hence, we are keeping our -5% YoY FFB output growth for FY22E.
1-for-2 bonus issues pending approval
Its final DPS proposed for FY21 of 6sen (ex-date: 29 June; payable 15 July) missed our expectation as FY21’s total DPS of 10sen (FY20: 6sen) merely equates to 11% payout ratio. This was despite record profits for FY21 and SOP being in a net cash position. Positively, SOP has proposed 1 bonus share for every 2 existing shares (subject to shareholders’ approval on 23 June) to improve its share price liquidity.