PETALING JAYA: High average selling prices (ASP) of crude oil palm (CPO) have resulted in margin expansion for Sarawak Oil Palms Bhd’s downstream businesss.
According to RHB Research, Sarawak Oil Palms will be expanding its refinery capacity by 53% to 2,300 tonnes per day at a cost of RM40mil to be completed in the second half of this year, as the plantation company’s refinery utilisation rate remains close to 90%.
“The management is of the view that prices of CPO would remain elevated in the first half of this year, followed by a decline in the second half of this year if cropping patterns improve and if there is any change in biodiesel mandates globally,” said the research house in a report.
The research house said the minimal forward sales made, with only 6,000 tonnes sold at around RM3,800 per tonne early this year, should bode well for Sarawak Oil Palms in the high-priced environment.
“As such, it is not participating in any forward sales at the moment, but this may change in the latter part of the year,” it said.
Due to higher fertiliser costs, Sarawak Oil Palms had estimated an increase about 10% to 15% year-on-year (y-o-y) to its unit costs in financial year 2022 (FY22). It recorded unit costs of RM1,500 to RM1,600 per tonne in FY21.
Sarawak Oil Palms was able to use the unutilised fertiliser in the first half of this year, since it only completed 75% of its fertiliser application in 2021.
“Together with the lower-priced unutilised fertiliser last year, Sarawak Oil Palms’ fertiliser costs for the first half of this year are expected to rise 50% y-o-y,” it said.
Despite a 11.8% lower fresh fruit bunche (FFB) production in January 2022 to 88,787 tonnes compared with 100,642 tonnes in January 2021, management guided for flat y-o-y FFB growth.
“This is due to the black bunch count conducted recently and the improved weather in March,” it said.
The research house reiterated a “buy” call with a lower target price of RM6.05 compared with RM6.35 previously for Sarawak Oil Palms.