OKOMU OIL PALM COMPANY PLC - Topline weakness drives H1 earnings miss
Topline weakness drives H1 earnings miss
OKOMUOIL recently released its H1’18 results, reporting a modest 4% y/y increase in topline to ₦12.9 billion – lagging our ₦13.5 billion estimate. The weaker than expected revenue was driven by a 23% q/q decline in top line in Q2’18, coming in 15% below the performance from the corresponding period in the prior year. The breakdown of Q2 topline showed a decline in both local sales (mostly oil palm – 15% down y/y to ₦5.1 billion) and exports (mostly rubber – 9% down y/y to ₦0.5 billion). We attribute the top line miss to both moderating global CPO prices (down 17% y/y) as well as weaker than expected volume roll out. Furthermore, H1’18 EBIT declined 12% y/y to ₦7.0 billion vs. our ₦7.4 billion estimate, pressured by a 31% y/y increase in operating costs (Cost of sales + Operating expenses).
Following the weaker than expected H1’18 figures, we have made some revisions to our estimates. First, we reduce our FY’18 oil palm and rubber price expectations to reflect global realities, arriving at a reduced topline of ₦22.2 billion (Previous: ₦24.0 billion). We have also reduced our FY’18 EBIT estimate to ₦10.2 billion (Previous: ₦11.4 billion), after adjusting for higher-than-expected operating costs. Overall, we revise our interest and tax forecast higher and cut our FY’18 PAT estimate to ₦8.4 billion (Previous: ₦9.8 billion). Consequently, our target price is cut to ₦86.02 (Previous: ₦94.59).
Okomu Oil Palm Company PLC. is an indigenous agro-allied company engaged in the cultivation of oil palm, processing of fresh fruit bunches into crude palm oil for resale, rubber plantation and processing of rubber lumps into rubber cake for export. The company was established in 1976 as a Federal Government pilot project covering an area of 15,580 hectares and was incorporated as a private limited liability company in 1979.
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