MERCURY Securities Sdn Bhd has cut Sarawak Oil Palm Bhd’s (SOP) financial year 2022 (FY22) earnings per share (EPS) forecast to 40 sen from 52 sen previously on expectations of lower fresh fruit bunches (FFB) production due to the labour shortage in the industry.
The forecast EPS was also cut due the possibility of a higher corporate tax of 34% the company may have to pay in the year as stated in Budget 2022.
SOP’s revenue surged by 63.7% year-on-year (YoY) to RM1.3 billion in the third quarter ended Sept 30, 2021 (3Q21), thanks to the higher CPO prices.
Net profit for the nine months (9M21) rose to RM302 million versus RM183.4 million in 9M20 due to higher prices of palm products.
Mercury’s analyst, Justin Teo,stated that SOP’s net profit surged by 70% YoY to RM125.5 million in 3Q21 on higher average palm oil product prices of RM4,490 per metric tonnes (MT) during the quarter, compared to RM2,845 per MT in the corresponding quarter in the previous year.
The profitability was partially offset by lower FFB production of 10% due to labour shortages as the result of the Covid-19 pandemic.
Teo is reiterating an average CPO price of RM3,680 per MT for FY22.
“We opine SOP will still generate healthy profits in our forecasted CPO price environment,” he stated in a report released last week.
The analyst has reduced the target price for SOP to RM5.50 from RM6.24 previously due to the adjustment in the FY22 EPS forecast.
“We are maintaining a ‘Buy’ call on SOP as we see a potential upside of 58% to its current price,” the report noted.
SOP shares closed six sen higher at RM3.50 yesterday, valuing the plantation group for RM2 billion.