KUALA LUMPUR: Sarawak Oil Palms Bhd's earnings are expected to grow, backed by decent fresh fruit bunch (FFB) growth and improving downstream utilisation, said RHB Research.
However, the research house said this will be partially offset by slightly higher crude palm oil (CPO) unit costs.
"Despite the strong start, the company is maintaining its 2024 FFB growth target at 5–6 per cent, as management is still wary of the lingering impact of El Nino in the second half of 2024 (2H24).
"We note, however, that the northern areas make up only 8–10 per cent of the total planted area. Bearing this in mind, we raise our FFB growth assumption for the financial year 2024 (FY24) to 7.3 per cent from about 6 per cent, while FY25F–26F is at 3–4 percent growth," it said.
According to RHB Research, Sarawak Oil Palm's new multi-feed higher quality oil refinery with a capacity of 240,000 per annum (pa) was officially launched at the end of the first quarter (Q1) of 2024 but has been running since 2023.
With this, it said the company's total downstream capacity has risen by 53 per cent to 690,000 tonnes.
"Given the higher-than-expected utilisation rate in FY23, we raise our utilisation rate for FY24F–26F to 75 per cent (from 50 per cent)," it said.
On the margin front, RHB Research said Sarawak Oil Palm managed to stay in the black in FY23 and expects to remain profitable in FY24F, due to its better product mix and new marketing strategy.
The firm increases its FY24F-FY26 earnings forecast by 2–3 per cent after imputing higher FFB growth and downstream utilisation rates.
It maintains a buy call on the stock with a new RM3.30 target price from RM3.20.