KUCHING: Home-grown oil palm player, Sarawak Oil Palms Bhd (Sarawak Oil Palms) should experience stronger growth from this year onwards as contributions from its maturing trees increases.
According to OSK Research Sdn Bhd (OSK Research), some 57.2 per cent of its mature trees were in the young mature category and would continue to record production growth.
The research house opined that the real kicker would come in next year as the trees planted in 2007 and 2008 started contributing materially.
“The 57.2 per cent of total mature trees are young mature trees (trees below age 10).
“These are trees that have started producing fruits fit for harvesting but have yet to reach full maturity and thus will continue to record production growth.
“We think that as the current batch of young mature trees mature further to near peak maturity, the company has the potential to record double-digit FFB (fresh fruit bunch) production growth (as in above 10 per cent),” estimated an analyst from OSK Research.
The analyst stated that Sarawak Oil Palms’ last year FFB production grew by 1.5 per cent from over 649,000 tonnes to over 659,000 tonnes, still 0.5 per cent below its 2008 peak.
The research house highlighted that while production growth was marginal and somewhat disappointing, it was in line with Kuala Lumpur Kepong Bhd’s 1.4 per cent and better than the negative growth charted by Tradewinds Plantation Bhd and IOI Corporation Bhd , although it was still weaker than IJM Plantations Bhd 3.7 per cent and Genting Plantations Bhd’s 3.4 per cent.
“Sarawak Oil Palms achieved bumper crops in 2008, with FFB production jumping 18.4 per cent y-o-y (year-on-year). After bumper crops, production will in some instances undergo one to two years of below potential production due to tree stress (2009’s annual report said that the Group experienced low production cycle).
“We think that this factor, coupled with some unfavourable weather conditions in Sarawak, contributed to the below potential production for the past two years,” said the analyst.
OSK Research said that Sarawak Oil Palms achieved 4,688 hectare (ha) of new planting, bringing its planted area to 58,940 ha.
The research house pointed out that it should not be too difficult for Sarawak Oil Palms to acquire new land given its ties with Sarawak’s state-owned Pelita Holdings Sdn Bhd but management was currently focused on expanding its downstream activities.
“From what we gather, Sarawak Oil Palms is currently focused on expanding its downstream activities (ie refining) and not landbank expansion. The company, however, does not rule out any land acquisition should attractive opportunities arise. If the group chooses to acquire land, the land will be in the state of Sarawak,” commented the analyst.
OSK Research reported that Sarawak Oil Palms’ core earnings for last year of RM147.2 million were 5.5 per cent above the research house’s expectations of RM139.5 million.
The research house stated that the difference was stronger than expected because Sarawak Oil Palms’ realised palm prices buoyed the research house’s revenue ahead of its forecast by 5.7 per cent.
OSK Research noted that at earnings before interest, tax, depreciation and amortisation (EBITDA) level, the company achieved RM269.7 million, in line with the research house’s RM267.4 million forecast.
OSK Research pegged Sarawak Oil Palms shares with the target price of RM5.22 per share.
(The Borneo Post)