Event: OKOMU Oil Palm Plc (OKOMUOIL) published its Q1-22 unaudited results at market close on Friday (29 April). The company reported a PAT growth of 80.2% y/y to NGN9.50 billion (Q1-21: NGN5.27 billion), representing an EPS print of NGN9.96 (Q1-21: NGN5.53) owing to the strong revenue growth (+63.2% y/y) in the period.
 
Revenue grew by 63.2% y/y to NGN20.49 billion in Q1-22 – the highest ever quarterly print – primarily driven by solid growth in sales – local (+66.6% y/y | 92.1% of revenue) and export (+31.8% y/y | 7.9% of revenue). We attribute the growth in revenue to the surge in CPO price (Average CIF Rotterdam CPO price: USD1,569.18/mt in Q1-22 vs USD1,087.18/mt in Q1-21) influenced by the Russia/Ukraine crisis and sustained supply issues in the international market. Sequentially, revenue increased markedly by 219.5% q/q, owing to the aforementioned higher prices.
 
Gross margin contracted by 10.31ppts to 85.9% in Q1-22 (Q1-21: 96.2%) due to a faster growth in cost of sales (+504.1% y/y) relative to revenue (+63.2% y/y). We suspect that higher crude oil prices (Average Brent price: USD97.86/bbl in Q1-22 vs USD61.32/bbl in Q1-21) must have influenced an increase in the cost of fertilizers, which must have caused an increase in plantation costs.
 
Notwithstanding, EBIT surged by 95.9% y/y to NGN13.70 billion (Q1-21: NGN6.99 billion), given the robust increase in revenue (+63.2% y/y) and a 23.4% y/y decline in operating expenses. Accordingly, the EBIT margin was higher by 11.18ppts to 66.9% (Q1-21: 55.7%) with OPEX-to-sales ratio down to 19.0% (Q1-21: 40.5%).
 
Net finance cost increased by 489.0% y/y to NGN131.07 million (Q1-2021: NGN22.24 million), following a 470.3% y/y increase in finance costs to NGN134.90 million, driven majorly by a 557.8% y/y increase in interest on long term loans to NGN134.55 million.
 
Overall, the company recorded a PBT growth of 94.7% to NGN13.57 billion in Q1-22 (Q1-21: NGN6.97 billion). Following a tax expense of NGN4.07 billion, profit after tax grew by 80.2% y/y to NGN9.50 billion (Q1-21: NGN5.27 billion).
 
Comment: OKOMUOIL’s numbers for the quarter aligned with our expectations, given the higher CPO prices so far in the year. Although we believe margins will remain pressured in the near term considering the effects of the higher crude oil  prices on plantation costs, we still expect impressive topline growth to continue to shore up the company’s earnings in 2022FY. Our estimates are under review.