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 SOP 5126 SARAWAK OIL PALMS BERHAD to record positive earnings in Q1 given the current high-priced of CPO, says RHB Research

Sarawak Oil Palms Bhd likely to record another good set of results for Q1 2022, given the current high-priced environment for crude palm oil.

KUALA LUMPUR: RHB Investment Bank Bhd (RHB Research) anticipate Sarawak Oil Palms Bhd (SOPB) to record another good set of results for the first quarter (Q1) 2022, given the current high-priced environment for crude palm oil (CPO).

As the Malaysian Palm Oil Board (MPOB) spot prices averaged at RM6,183 per tonne compared to RM5,171 per tonne in the fourth quarter (Q4) 2021, SOPB's position as a pure Malaysian planter with minimal forward sales would benefit from the high prices, the bank-backed research firm noted.

"However, this would slightly be offset by its lower fresh fruit brunches (FFB) output. All in, we believe Q1 2022 earnings would be 15-20 per cent higher quarter-on-quarter (QoQ), the research firm said in a recent note.

The firm also noted that SOPB's March FFB production grew 14.7 per cent month-on-month (MoM) from better weather.

However, year-to-date (YTD) FFB output dropped by 13.7 per cent year-on-year (YoY).

"We expect this low FFB output trend to continue, at least until the end of the first half (1H) of 2022, given the labour

shortage plaguing the sector.

"We expect FFB to dip 0.5 per cent YoY this year, then grow by 6 per cent YoY in FY23 vs SOP's flat growth guidance for FY22," RHB Research said.

Further, RHB Research also noted that the foreign worker recruitment process remains slow due to streamlining permit applications through the Foreign Workers Centralised Management System (FWCMS) portal.

Of the 475,678 employers that had submitted applications to recruit foreign workers through the system up to 1 April,

53,854, or 11.3 per cent of them, are for the plantation sector.

"Note that the 32,000 workers previously approved solely for the plantation sector have yet to arrive.

"We understand that SOPB has started hiring contract workers to alleviate its labour shortage (currently at 30-35 per cent), but the impact is relatively insignificant so far.

"If this situation is prolonged until the second half (2H) of 2022, when the peak season starts, SOPB might have to bear another round of under-optimisation of crops due to the lack of workers on the harvesting side," RHB Research said.

The firm also noted that SOPB had proposed a 1-for-2 bonus issue of up to approximately 303 million shares.

"We believe this exercise will increase its share trading liquidity. However, the entitlement date has yet to be announced," it said.

The research firm maintains a Buy call for SOPB with a new target price of RM7.05 from RM6.05 previously, a nine per cent upside with a two per cent FY22 yield.

Key downside risks include declining CPO prices, weather risks, and lower-than-expected FFB production output.


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