SOP (5126): Pure Play Strategy & Attractive Valuation Drive BUY Rating
Summary (TL;DR):
- Research Firm: RHB Investment Bank
- Subject: SOP / SOP (5126)
- Core Rating: BUY
- Target Price / Top Picks: MYR 3.80
- One-Liner: Sarawak Oil Palms maintains a BUY rating due to its pure-play strategy and attractive valuation, trading at the low end of its peer P/E average.
Report at a Glance
RHB Investment Bank released its latest research report on SOP on 2025-07-09, maintaining a “BUY“ rating with a target price of MYR 3.80. The core thesis of the report is that SOP’s pure-play strategy in oil palm cultivation and CPO refining, coupled with its appealing valuation at the lower end of industry peers, makes it an attractive investment despite expected CPO price volatility.
Investment Thesis (The Bull Case)
- Pure Play & Value: SOP is favored for its pure-play strategy in the plantation sector and trades at an attractive 6x FY26F P/E, which is at the lower end of its peer average of 6-11x.
- Improved PK Prices: The analyst has raised palm kernel (PK) price assumptions for FY25-27, which is positive for SOP’s revenue and profitability.
- Balanced Market Outlook: Global supply and demand for the 17 oils and fats complex are expected to be more balanced in 2026F, with supply improving and demand picking up due to more attractive relative prices, especially from price-sensitive countries like India, Pakistan, and Bangladesh.
Potential Risks (The Bear Case)
- CPO Price Volatility: CPO prices are expected to remain volatile due to ever-changing geopolitical situations, which can significantly impact SOP’s earnings.
- Tight Stock/Usage Ratio: The stock/usage ratio of the 17 oils and fats complex is projected to remain below the historical average (12.9% for Oct 2025F/Sep 2026F vs. 13.6%), indicating little cushion for short-term bullish supply or demand surprises, thus raising the risk of price volatility.
- Weather Risks: Adverse weather conditions can impact Fresh Fruit Bunch (FFB) production output, a key driver for plantation companies like SOP.
Financial Forecast Summary
The analyst’s financial projections for the coming years are as follows:
| Fiscal Year (YE to Dec) | FY25F | FY26F | FY27F |
|---|---|---|---|
| Revenue (RM mil) | 5,241 | 5,185 | 5,135 |
| Net Profit (RM mil) | 520 | 488 | 478 |
| EPS (sen) | 0.58 | 0.55 | 0.54 |
| DPS (sen) | 0.13 | 0.12 | 0.12 |
| Dividend Yield (%) | 4.2 | 3.8 | 3.8 |
| P/E Ratio (x) | 5.34 | 5.69 | 5.82 |
(Source: RHB Investment Bank research report)
Valuation & Target Price
| Rating | BUY |
| Last Close Price | MYR 3.12 |
| Target Price (TP) | MYR 3.80 |
| Valuation Methodology | The target price of MYR 3.80 is based on a new 8x FY26F P/E, which is in line with SOP’s updated historical average. This valuation is also backed by an EV/ha of USD10,000/ha, positioned at the mid-end of its peer average (USD8,000-15,000/ha). |
Analyst’s Conclusion
- Overall Stance: RHB Investment Bank maintains a “BUY” rating on SOP, viewing its fundamentals as solid and its valuation appealing despite anticipated volatility in CPO prices.
- Key Catalyst/Strength: SOP’s pure-play plantation strategy and attractive valuation multiples relative to peers are key strengths. Increased palm kernel (PK) price assumptions and a more balanced global supply-demand outlook for oils and fats in 2026F are also positive catalysts.
- Major Headwind/Risk: The primary headwind is the persistent volatility in CPO prices, largely influenced by geopolitical risks. Additionally, the relatively tight global stock-to-usage ratio for oils and fats leaves the market susceptible to price spikes from supply or demand shocks.
- What to Watch: Investors should monitor the evolving geopolitical situation and its impact on crude oil and CPO prices, as well as the global supply and demand dynamics of the vegetable oil industry. FFB production output and the competitiveness of SOP’s downstream processing division are also key factors to watch.
Disclaimer: This article is a summary and interpretation of a research report published by RHB Investment Bank on 2025-07-09. All information is for reference purposes only and does not constitute investment advice. Investors should conduct their own independent research and due diligence and assume all associated risks.
