SOP: Strong Performance and Cost Management Drive Earnings, Target Price Raised

Analysts maintain a ‘BUY’ recommendation with a revised target price, following the latest financial results that largely met expectations and demonstrated robust core profit growth. The company reported a significant increase in its third-quarter core profit, contributing to a healthy nine-month performance, and is poised for stronger output in the final quarter.

Performance Review

For the third quarter of 2025 (3Q25), core profit surged by 21% quarter-on-quarter and 4% year-on-year, bringing year-to-date (9M25) earnings to MYR336 million, a 7% increase year-on-year. This performance was largely in line with the investment bank’s and Street’s full-year estimates, reaching 72-75% of projections.

The strong earnings were primarily attributed to higher estimated Crude Palm Oil (CPO) average selling prices (ASPs), which rose by 9% year-on-year, and a substantial 48% year-on-year increase in Palm Kernel (PK) ASPs. These positive factors offset a 10% year-on-year decline in CPO production, which was impacted by lower external Fresh Fruit Bunch (FFB) purchases.

Despite a flat year-on-year FFB output for 9M25, FFB production saw a 5% improvement quarter-on-quarter in 3Q25. The company expects output to continue improving quarter-on-quarter in 4Q25, with peak production anticipated in October/November, aided by favourable weather conditions. Estimated unit costs, however, rose by 17% year-on-year in 9M25, mainly due to the lower CPO output. Analysts anticipate these costs to trend lower quarter-on-quarter with higher expected output and sustained fertiliser application.

Future Outlook and Recommendation

The investment bank has revised its CPO price assumptions for 2025F and 2026F upwards to MYR4,350/tonne (from MYR4,100/tonne) and MYR4,250/tonne (from MYR4,100/tonne), respectively. PK price assumptions have also been increased for the same periods. These adjustments have led to an upgrade in earnings forecasts by 4%, 5%, and 2% for FY25F-27F. The company’s FFB growth target of 3-5% for FY25-27F remains intact, supported by expectations of continued output improvement.

Analysts reiterate a ‘BUY’ call, citing reasonable valuation, especially given the company’s attractive P/E multiple at the low end of its peers’ range and a healthy forecasted yield. The revised target price reflects increased confidence in the company’s ability to maintain strong operational performance and benefit from favourable commodity prices, particularly benefiting pure-play planters in the coming quarters.