28-04-2025
- Business
- New Straits Times
Sarawak Oil Palms' output recovery to sustain earnings
KUALA LUMPUR: Sarawak Oil Palms Bhd is expected to deliver a consistent earnings track record as output continues to improve, said RHB Research.
However, the research house noted that the earnings may be offset by moderating crude palm oil (CPO) prices.
Sarawak Oil recorded CPO average selling price (ASP) of RM4,688 in the first quarter (Q1) 2025, while palm kernel prices shot up by a larger 14 per cent quarter on quarter (QoQ) to RM4,105.
This is higher than the average Malaysian Palm Oil Board (MPOB) price, which represents a 13 per cent premium.
"Consequently, Sarawak Oil's profit before tax margin rose to 11 per cent during the quarter versus 8.5 per cent in Q1 2024.
"We note that the company does not engage in forward sales and we keep our financial year (FY25) CPO price assumption of RM4,300 per tonne," the firm said.
Sarawak Oil's Q1 2025 core profit fell 26 per cent QoQ to RM120.8 million, largely in line with RHB Research's and street estimates, at 24 per cent and 27 per cent of full-year forecasts.
It said the decline was mainly due to the drop in fresh fruit bunches output as well as lower CPO ASPs.
"We note that Sarawak Oil is now in the midst of securing first half 2025 fertiliser requirements at prices that are flattish year on year (YoY).
"We keep our unit cost assumptions unchanged, for now, as we expect output recovery in the coming quarters, which should bring down unit costs accordingly," it said.
Overall, RHB Research noted that there will be no disclosure for Sarawak Oil's downstream, but the firm is of the view the segment will face challenges, no thanks to the current volatility in the market.
While Malaysia's palm oil may appear attractive compared to Indonesia's due to lower US tariffs, the firm said this advantage may not be straightforward.
It noted that Indonesia's more advantageous tax structure at 17.9 per cent compared with Malaysia's 10 per cent, assuming the recent proposal to revise export tax, could offset the benefit.
"As such, we remain cautious on the segment's performance and keep our conservative estimates for the utilisation rate of 75 per cent and margin assumptions of three per cent.
"We make no changes to our earnings, as CPO prices continue to moderate. We maintain 'buy' and RM4.80 target price on the stock," it added.
