SOP: An Attractive Plantation Stock

Background

Sarawak Oil Palms Bhd ("SOP") is involved in the cultivation of oil palms and the operation of palm oil mills. Its business divisions include Plantation, Milling, Downstream, Marketing & Trading and Property Development.

In December 2016, it completed the acquisition of Shin Yang Oil Palm (Sarawak) Sdn Bhd (SYOP) from a related party, Shin Yang Holdings Sdn Bhd (SYHSB) for an enterprise value of RM873 million. This raised its total land bank by 65% to 119,653ha, with planted area increasing by 37% to 87,744ha.

SOP's Planted Hectarage as at December 2016 (from Annual Report for FY2016)

Historical Financial Performance

SOP's revenue has been on a steady uptrend since 2009. Profits, which peaked in FY2011, began to recover in FY2016 mainly due to the favorable palm products average realized prices which more than offset the drop of the Group's FFB production by 11% (as a result of the El-Nino phenomenon). The profits for FY2017 is projected to increase as the 1H2017 has already showed better results due to higher FFB production volume and higher average palm products realized price improvement and a fair value gain on derivative financial instruments of RM27 million.


Graph 1: SOP's last 19 years' P&L

Recent Financial Results

In QE30/6/2017, SOP's net profit dropped 2% q-o-q but rose 100% y-o-y to RM67 million while revenue rose 9% q-o-q or 28% y-o-y to RM1.22 billion.


Table 1: SOP's last 8 quarters' P&L


Graph 2: SOP's last 12 quarters' P&L

Latest Financial Position

As at 30/6/2017, SOP's financial position is deemed healthy with current ratio at 1.65x and gearing ratio at 0.96x.

Valuation

SOP (closed at RM4.17 yesterday) is now trading at a trailing PER of 10.5x (based on last 4 quarters' EPS of 39.6 sen). This compared favorably to other larger plantation groups, like KLK (with PER of 22x) or UTDPLT (with PER of 17x) or GENP (with PER of 18x).

Technical Outlook

SOP has broken above its downtrend line at RM3.60 in August. On October 2, it broke above the "horizontal line" at RM4.00 - albeit on thin volume. Yesterday it continued to rise - still on relatively thin volume. Its immediate resistance is at the horizontal line at RM4.45.


Chart 1: SOP's weekly chart as at Oct 3, 2017 (Source: MalaysiaStock.biz)

SOP is in a long-term uptrend line with support at RM3.50.


Chart 2: SOP's monthly chart as at Oct 3, 2017 (Source: ShareInvestor.com)

Conclusion

Based on good financial performance & position, attractive valuation & positive technical outlook, SOP could be a good stock for long-term investment.

Note:
I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.