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OKOMU OIL PALM COMPANY PLC Q1'17 - Earnings on path of another historic year

​Earnings on a path to another historic year
OKOMUOIL reported its Q1’17 earnings last week, showing impressive performance across board. Strong domestic Crude Palm Oil (CPO) prices continued to lift the company’s Oil Palm business, with the segment’s revenue up 73% y/y to ₦5.1 billion, beating our estimate of ₦4.0 billion. The Rubber business (export) reported a much stronger topline growth (albeit 8% lower than our estimate), up 112% y/y to ₦773 million (Vetiva: ₦838 million) - supported by currency depreciation and higher international rubber prices. Overall, total revenue rose 77% y/y to ₦5.9 billion, 21% ahead of our estimate. Although cost of sales more than doubled to ₦1.3 billion, the strong topline growth and a well contained rise in OPEX (up 11% y/y) ensured EBIT doubled to ₦3.4 billion, 60% better than our estimate. Overall, Q1’17 PAT rose 92% y/y to ₦3.1 billion, beating our ₦1.8 billion estimate.

In the short term, strong domestic CPO price remains the biggest upside to OKOMUOIL’s earnings as the company continues to benefit from favorable government policies. Whilst we are excited about the recent and ongoing investments, we note that this would take about 4-5 years to start yielding results. Meanwhile, although average CPO prices remained strong in Q1’17, we believe the recent improvement in the FX market and the resulting strengthening of the currency in the parallel market could cap the persistent rise in domestic CPO prices even as international CPO prices have been on the downtrend (down 12% ytd). Notwithstanding, we expect average prices to be higher than 2016 prices. Following the stronger than expected topline from the Oil Palm business, we revise the segment’s FY’17 revenue to ₦17.5 billion (Previous: ₦13.0 billion); our revised FY’17 revenue across the two segments now stands at ₦20.6 billion (Previous: ₦16.3). We have also revised our FY’17 PAT to ₦9.1 billion (Previous: ₦5.5 billion). With Q1’17 PAT already 53% of erstwhile FY’17 estimate, we foresee another record dividend declaration. We revise our target price to ₦68.69 (Previous: ₦54.05).