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OKOMU OIL PALM COMPANY PLC FY'17 - Earnings climax in line with expectations

Earnings climax in line with expectations
OKOMUOIL recently released FY’17 results showing strong y/y growth across all line items and mostly in line with our expectations. Overall, total revenue rose 40% y/y to ₦20.3 billion, 4% behind our estimate, whilst Gross Profit increased 49% to ₦16.0 billion, 6% behind our estimate. However, with OPEX (as a % of sales) contained better than expected (FY’17: 25% vs Vetiva: 31%), FY’17 EBIT (up 60% y/y to ₦11.1 billion) topped our estimate marginally by 2%. Overall, with a lower than expected effective tax rate of 18% (Vetiva: 29%, 9M’17: 30%), PAT (up 89% y/y to ₦9.1 billion) came in 29% ahead of our ₦7.6 billion estimate.

Given our outlook of weaker CPO prices in 2018, we expect earnings to be capped amidst sticky volume growth. Particularly, we note consensus forecast of a 10% decline in global CPO prices over the course of the year, given weaker demand outlook in India and China, as well as stronger supply (due to favorable weather condition) in Malaysia and Indonesia. Also, the significant improvement in FX market liquidity since last year is expected to persist due to the positive outlook on Nigeria’s FX inflows, and should support import (including oil palm products), further fueling competition. Consequently, we revise our FY’18 revenue to ₦18.7 billion (Previous: ₦20.7 billion). Overall, we cut our FY’18 PAT estimate to ₦8.1 billion (Previous: ₦8.5 billion). Importantly, we note that OKOMUOIL’s expansion plan remains on track; an order for the first of two 30t/hour oil mills has been placed, and is expected to be commissioned by 2020. Notwithstanding, largely due to a dimmer outlook on CPO prices, we revise our target price lower to ₦76.47 (Previous: ₦80.68).