SARAWAK OIL PALM SET TO SEE YEARS OF STRONG PRODUCTION GROWTH, SAYS OSK

KUALA LUMPUR, Feb 14 (Bernama) -- Sarawak Oil Palms (SOP) is set to see years of
strong production growth ahead where it will experience double-digit fresh fruit
bunch (FFB) production growth at least until 2013, peaking at 1.25 million
tonnes in 2017, says OSK Research.

This means the company will enjoy steady earnings growth even if it chooses not
to expand its planted area and with 76.5 per cent of its trees in the immature
or young mature categories annual production should jump 86.3 per cent from 2010
levels in five years' time, it said.

"We think given its young age profile and coupled with its strong balance sheet
and management expertise, we think this stock is due for an upward re-rating,"
said OSK in a statement.

On SOP's plans to venture downstream by building a refinery and kernel crushing
plant in Bintulu in East Malaysia state of Sarawak, the research house said the
new refinery would be sufficient to refine all of the company's crude palm oil
production.

The refinery is expected to be fully utilised by its own CPO production within
three years of operations, it said.

SOP has about 13.5 million hectares of unplanted landbank.

In the absence of any new landbank acquisition and assuming annual new planting
of 4.5 million hectares, SOP would exhaust its landbank at the latest by 2013,
OSK said.

"The company however will consider putting its sizeable cash pile to use should
attractive opportunities for landbank in Sarawak arise.

On the FFB yield prospects, it said, FFB yield would be rangebound for the next
few years as the company's current batch of immature trees come into maturity.

Among the two factors that contribute to the FFB yield are rising production
from the current mature area will contribute to a higher FFb yield, while
reclassification of previously immature areas as matured will be a drag on
yields.

Given SOP's large proportion of immature trees, annual FFB production growth
should pick up significantly and come in around or above 10 per cent at least
until 2015, if weather conditions remain conducive, said OSK.

"We recommend a "buy" call with RM5.22 target price," OSK added.
(US$1=RM3.05)
-- BERNAMA



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