OKOMUOIL Q2 2018 Result- Volumes Slump Drives Earnings Weakness

Proshare

Thursday, July 26, 2018 /1:20PM/ ARM Research

The Okomu Oil Palm Plc (Okomu) released its Q2 2018 result yesterday wherein earnings dipped 22% YoY to N2.47 billion, translating to an EPS of N2.59. The dull Q2 performance eroded volumes-led gains in Q1 2018 as cumulative earnings in H1 2018 plunged 4.7% YoY to N5.94 billion.

In terms of driver, the company recorded revenue contraction of 14.9% to N5.6 billion underpinned by weaker sales volume and in part falling local CPO prices (-2.5% YoY) in Q2 2018. Okomu faced volumes pressures owing to lower than expected Yield Ton FFB/ ha in Q2 2018 (-33% YoY to 2.51) which translated to a 10% YoY contraction in volumes by our estimates (Q2 18: 12,000 MT).

Elsewhere, the contraction in local CPO prices mirrors falling global CPO prices (-11.5% YoY over Q2 2018) following widening surplus in the global CPO market. Accordingly, palm oil sales declined 15.4% YoY to N5.1 billion. In a similar fashion, the company reported weaker revenue from rubber (-9.1% YoY to N461 million), also due to weaker rubbers prices (-16% YoY over Q2 2018) in global markets. Despite weaker volumes in the period, Okomu faced cost pressures with cost of sales tracking significantly higher (Q2 2018: N1.14 vs N22 million in Q2 2017). As a result, gross profit plunged 32.1% YoY to N4.45 billion while related margin contracted 20ppts to 79.6%.

Despite sizeable fall in operating expenses (-25.9% YoY to N1.51 billion), EBIT for the quarter dipped 34.8% YoY to N2.95 billion—tailing weaker top line earnings while related margin declined 16ppts to 52.7%. However, having paid down its FCY owed to its parent company (Socfinal Group), finance expense slipped 50.5% YoY to N125.63 billion.

This in addition to tamer slump in finance income (Q2 18 -4.7% YoY to N141 million), translated to a net finance income of N15.39 billion over the review period in relation to an expense of N106 billion in Q2 2017.

 

Overall, the combination of dwindling revenues (Q2 2018: -14.9% YoY) and cost pressures led the company to report weaker PAT which plunged 22% to N2.47 billion in Q2 2018. Okomu trades at a current P/E of 8.94x versus 16.45x for Bloomberg MENA peers. We have a BUY rating on the stock based on our last communicated FVE of N102.3.

More analysis to follow.

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.


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