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OKOMU OIL PALM COMPANY PLC Q1'18 - Impressive start to FY'18

Impressive start to FY’18                                                                             

OKOMUOIL recently released its Q1’18 results showing strong y/y growth across all line items. PAT over the 3-month period came in at ₦3.5 billion, 13% higher than prior year’s ₦3.1 billion. The decent performance was majorly driven by a 25% y/y topline growth to ₦6.7 billion and a significant 48% y/y decline in cost of sales to ₦0.7 billion - outweighing pressures from OPEX (up 116% y/y, significantly higher than expected) and higher effective tax rate. On a product segment basis, the numbers look solid with the Oil Palm segment and Rubber (export) segment reporting higher Revenue growth y/y – 24% to ₦6.6 billion and 27% to ₦1.0 billion respectively.

Whilst we maintain our view of further softening in CPO prices in subsequent quarters, we raise our volume expectations for the year amidst Q1 outperformance. We also believe the volume growth was partly driven by production from maturing plantations. Consequently, we revise our FY’18 Revenue to ₦24.0 billion (Previous: ₦18.7 billion), and raise our post-2018 Revenues estimate higher by c.15%. Similarly, we raise our FY’18 EBIT to ₦11.4 billion (Previous: ₦9.6 billion) even after noting the potential hike in costs in H2 as earlier highlighted. Overall, we revise our FY’18 PAT to ₦9.8 billion (Previous: ₦8.1 billion), and our target price to ₦94.59 (Previous: ₦76.47) driven by higher revision to post-2018 volumes & earnings and lower risk-free rate environment.