RHB Research raises target price for Sarawak Oil Palms to RM2.70

KUALA LUMPUR (April 13): RHB Investment Bank Bhd Research has maintained its “Buy” rating on Sarawak Oil Palms Bhd (SOP) at RM2.49 with a higher target price (TP) of RM2.70 (from RM2.35) and said it was relieved that things are stable in Sarawak, on the back of proactive and pre-emptive strategies put in place by management.

In a note today, the research house said SOP has reacted promptly to the COVID-19 pandemic and organized its estates to function effectively as individual units, restricting the movement of workers to within their respective units, with the exception of those involved in logistics.

It said SOP has set up a COVID-19 relief fund to provide protective equipment, additional wage relief for extra working days and food for workers.

“Management has even taken the additional step of not allowing its workers to go off during weekends and during the upcoming Hari Raya holidays, to prevent potential infections,” it said.

RHB Research said exports to India have been drastically affected of late due to political issues, which caused import restrictions, but SOP has managed to redirect their exports to other countries.

It said demand from China slowed in previous months but is starting to pick up as the country lifts its provincial lockdowns.

“SOP believes that due to the current low crop season and its diversified geographical exposure (South Africa, China, Middle East and the EU), the impact of lower demand will not be significant in 1Q20 and remains upbeat on a pick-up in 2H20.

“SOP’s refinery continues to run at close to full capacity currently.

“We raise FY20 earnings by 14.8% and leave FY21-22 forecasts unchanged. Our TP is raised to MYR2.70 from MYR2.35 , based on unchanged 14x FY20 P/E. This implies an EV/ha of USD8,000/ha, at the low end of its peers, which trade at a USD8,000-15,000/ha range,” it said.