Event: Okomu Oil reports Q2 2017 results
Implications: Upward revision to consensus estimates expected
Positives: Sales, PBT and PAT advanced by 56% y/y, 94% y/y and 58% y/y respectively
Negatives: No obvious negatives
This morning, Okomu Oil (Okomu) reported Q2 2017 results which showed that sales grew by 56% y/y to N6.6bn. PBT and PAT of N4.4bn and N3.2bn advanced by 94% y/y and 58% y/y respectively. Although net interest costs and operating expenses increased by 50% y/y and 16% y/y respectively, these were not strong enough to offset the strong sales growth and a 250bp y/y gross margin expansion to 99.7%, leading to the PBT growth.
The PAT growth was slower due to a higher tax rate of 28% compared with 12% in Q2 2016. On a sequential basis, sales grew by 12% q/q which we attribute to seasonality. The end-Jun quarter is usually the strongest quarter for the palm oil companies. Due to the q/q sales growth and a 2,109bp q/q gross margin expansion, PBT advanced by 30% q/q, despite a 64% q/q increase in operating expenses. PAT growth slowed to 3% q/q on the back of a higher tax rate (versus 10% recorded in the prior quarter). Compared with our estimates, while sales were slightly ahead, by 4%, PBT and PAT were ahead by 25% on average.
A breakdown of the revenue figure shows that palm oil sales of N6.1bn grew by 58% y/y while rubber sales of N507m grew by 23% during the quarter. The rubber business now represents 8% of Okomu’s topline compared with 40% in 2011. We believe the growth in palm oil sales was driven by both volume growth and pricing.
Okomu had in the past indicated that the company was implementing an aggressive expansion plan. It appears that the plans are yielding some rewards. Also, we continue to believe that local palm oil producers are in an advantageous position relative to importers (competitors) due to CBN policies which have translated to favorable pricing.
On an annualised basis, Okomu’s H1 sales are tracking ahead of consensus’ FY 2017 sales estimate of N20.6bn by 21%. PBT and PAT are tracking ahead by 45% on average. As such, we expect upward revisions to consensus estimates.
Year to date, Okomu shares have gained 85% vs the NSE ASI which has returned 37% this year. We rate the stock Neutral. Our estimates are under review.