Product price increases provided earnings support
We have made negligible changes to our price target and near-term earnings estimates. Q3 earnings were up significantly y/y and in line with our forecasts. Similar to Q2, an upward price adjustment drove the strong results, offsetting lower y/y unit volume sales. Average CPO and rubber prices were up +70% y/y and +55% y/y respectively, reflecting increased global commodity price volatility. Looking ahead, Okomu is firmly on the right track to achieve its best year on record. We estimate an EPS growth of 61% y/y to NGN13.1 for FY’21. On production, the Extension II plantation is now fully integrated, with its first 30tonne/hr mill commissioned.
Management mentioned that the second 30tonne/hr mill remains on track to be commissioned in Q1 2023. On costs, a 5MW turbine (powered by raw material waste) is also now operational and will lower production costs considerably. The turbine will generate enough electricity for both Okomu and Extension I plantations, meaningfully reducing the firm’s reliance on the national power grid or fossil fuels. Both capital projects were delayed by pandemic-related lockdowns for most of last year. Our new price target of NGN123.0 is relatively unchanged and implies a potential downside of -13.4% from current levels. We therefore retain our Neutral rating on the stock.
Also, we remain bullish on dividends. Although management did not provide any guidance for dividends for FY’21, we expect that strong y/y earnings growth and cash generation will lead to a decent payout. We believe these sentiments are shared by consensus. We forecast a dividend of around NGN7.00, which works out to a yield of 5%. Year-to-date, Okomu shares are up +56.0% vs. the ASI’s +8.3%.
Q3 ’21 earnings up strongly, +109% y/y
Okomu delivered a strong set of results. The strong y/y trend delivered in H1 ’21 continued into Q3. Sales of NGN7.4bn grew 46% y/y while PBT and PAT of NGN2.4bn and NGN2.1bn were up 80% y/y and 109% y/y respectively. In addition to an improved topline, a gross margin expansion of +475bps y/y to 83.6% also helped profitability. Quarterly performance was more subdued, as expected, due to seasonality effects. On a 9M basis, PAT of NGN11.6bn was up 135% y/y respectively. Compared with our estimates, both Q3 sales and PAT were in line.
Source FBNQuest Research
