May 06, 2019 / 03:15PM / ARM Research / Header Image Credit: Guardian
Bumpy Year Ahead
The Okomu Oil Palm Plc Q1 19 numbers released earlier this week, came with few surprises to us, with the major one being the more than expected decline in revenue over the period. Beyond doubt, the numbers can only be tagged a “Worrisome start to the year” as the company reported its weakest first quarter performance since 2014. Going by our communication with management, the poor performance stemmed largely from material erosion in global crude palm prices when compared to same period in the prior year and the increasing influx of lower priced CPO into the country. Beyond the obvious, we believe the high base in the prior year (due to bumper harvest and a much more favorable pricing) further magnified the material revenue crunch.
With the Q1 numbers signaling a bumpy year ahead, we have updated our models accordingly. Particularly, with year to date appreciation in global CPO prices still far from the level in the prior year and growing intensity of smuggled CPO, we expect local CPO prices to remain depressed over 2019. Worthy of note, while large corporates typically have controlled quality on the use of CPO and palm olein products, our market check suggests that much smaller corporates and individual households (which in our view accounts for the largest share of consumption) are not as concerned about the quality of CPO and its end products. With this in mind and our understanding of the need of management to empty its excess tank over Q2, guides o