Stock Name: SOP
Company Name: SARAWAK OIL PALMS BHD
Sarawak Oil Palms Bhd
(Aug 2, RM4.42)
Initiating coverage at RM4.34 with buy call and target price of RM6.80: Sarawak Oil Palms' (SOP) figures will make heads turn. SOP is Malaysia's seventh largest listed plantation company by planted area with 58,940ha of oil palm estates. With 42.5% of its estates still immature, SOP offers a robust 16% three-year compound annual growth rate (CAGR) in fresh fruit bunches (FFB) production and 21% three-year earnings per share CAGR, and yet trades at 8.3 times 2012 price-earnings ratio (PER). Its enterprise value (EV) per planted ha of RM32,912 is the lowest among our universe of coverage. We initiate coverage with a 'buy' and RM6.80 target price, based on 13 times forward PER (at implied EV per ha of RM51,000).
The average age of SOP's oil palm trees is 7.5 years. As FFB production peaks at around 10 to 12 years, SOP promises exponential FFB production CAGR of 16% over the next three years (or 58% in three years) to bring total FFB production to 1.06 million tonnes. And, assuming SOP continues its new planting of 3,000 to 5,000 ha per year, it can sustain double digit CAGR in FFB output till 2020. Internally, SOP plans to continue its aggressive landbanking strategy.
Despite a young profile with FFB yield at 20 tonnes per ha per year (which commensurates its age profile), SOP achieves a low all-in cost of production of RM1,119 per tonne (2010), which is equivalent if not better than producers that have currently hit peak production cycle. As the trees mature and yields improve, we believe its estates can bring down its cost of production further to be on par with efficient players like IOI Corp Bhd ('hold', target price RM5.50), Kuala Lumpur Kepong Bhd ('buy', TP RM23.25) and Genting Plantations Bhd ('hold', TP RM8.60).
SOP enjoys home ground advantage in securing more plantation land in Sarawak. The state has another one million ha earmarked for development. Besides its upstream opportunity, SOP is presently constructing 450,000 tonnes per year of refinery capacity in Bintulu. Backed by its current net cash position of RM102 million (March 2011), and comfortable net debt-to-equity ratio of one times, this gives SOP a potential war chest of RM1.3 billion to realise its short to medium term strategies. ' Maybank IB Research, Aug 2
This article appeared in The Edge Financial Daily, August 3, 2011.
Company Name: SARAWAK OIL PALMS BHD
| Research House: MAYBANK | Price Call: BUY | Target Price: 6.80 |
Sarawak Oil Palms Bhd
(Aug 2, RM4.42)
Initiating coverage at RM4.34 with buy call and target price of RM6.80: Sarawak Oil Palms' (SOP) figures will make heads turn. SOP is Malaysia's seventh largest listed plantation company by planted area with 58,940ha of oil palm estates. With 42.5% of its estates still immature, SOP offers a robust 16% three-year compound annual growth rate (CAGR) in fresh fruit bunches (FFB) production and 21% three-year earnings per share CAGR, and yet trades at 8.3 times 2012 price-earnings ratio (PER). Its enterprise value (EV) per planted ha of RM32,912 is the lowest among our universe of coverage. We initiate coverage with a 'buy' and RM6.80 target price, based on 13 times forward PER (at implied EV per ha of RM51,000).
The average age of SOP's oil palm trees is 7.5 years. As FFB production peaks at around 10 to 12 years, SOP promises exponential FFB production CAGR of 16% over the next three years (or 58% in three years) to bring total FFB production to 1.06 million tonnes. And, assuming SOP continues its new planting of 3,000 to 5,000 ha per year, it can sustain double digit CAGR in FFB output till 2020. Internally, SOP plans to continue its aggressive landbanking strategy.
Despite a young profile with FFB yield at 20 tonnes per ha per year (which commensurates its age profile), SOP achieves a low all-in cost of production of RM1,119 per tonne (2010), which is equivalent if not better than producers that have currently hit peak production cycle. As the trees mature and yields improve, we believe its estates can bring down its cost of production further to be on par with efficient players like IOI Corp Bhd ('hold', target price RM5.50), Kuala Lumpur Kepong Bhd ('buy', TP RM23.25) and Genting Plantations Bhd ('hold', TP RM8.60).
SOP enjoys home ground advantage in securing more plantation land in Sarawak. The state has another one million ha earmarked for development. Besides its upstream opportunity, SOP is presently constructing 450,000 tonnes per year of refinery capacity in Bintulu. Backed by its current net cash position of RM102 million (March 2011), and comfortable net debt-to-equity ratio of one times, this gives SOP a potential war chest of RM1.3 billion to realise its short to medium term strategies. ' Maybank IB Research, Aug 2
This article appeared in The Edge Financial Daily, August 3, 2011.
No comments:
Post a Comment