August 2, 2022/Cordros Report

Okomu Oil Palm Plc (OKOMUOIL) published its Q2-22 unaudited financials on Friday (July 29) reporting a standalone EPS growth of 72.1% y/y to NGN7.69 in Q2-22 (Q2-21: NGN4.47). Accordingly, H1-22 EPS stood at NGN17.65 (H1-21: NGN10.00). The growth in EPS was driven by stellar growth in topline amid higher net finance costs. The board proposed an interim dividend of NGN7.00/s, which implies a yield of 3.2% on the last closing price of NGN216.90 (August 01).

OKOMUOIL’s revenue in Q2-22 grew by +83.1% y/y, primarily driven by sustained growth across its  local (+89.9% y/y | 93.8% of revenue) and Export (+18.9% y/y | 6.2% of revenue) sale lines. Specifically, we attribute the growth in both segments to the surge in the global CPO price (Average CPO price: USD1,494.62/mt in Q2-22 vs USD1,016.00/mt in Q2-21 | USD1,210.17/mt in H1-22 vs USD588.54/mt in H1-21). On a q/q basis, revenue fell by 1.0% to NGN20.27 billion in Q2-22 (Q1-22: NGN20.49 billion).

Gross margin contracted significantly by 20.3ppts to 66.5% in Q2-22 (Q2-21: 86.8%) reflecting the effects of significant cost pressures (+364.2% y/y) on the company’s operations. We believe the higher costs emanated from the impact of higher crude oil prices on (1) energy costs (Average diesel prices in Q2-22: NGN686.44/ litre vs Q2-21 NGN239.48/ litre), and (2) the cost of fertilizers.

Consequently, operating margin declined by 48bps to 49.5% (Q2-21: 50.0%) amid a 15.4% y/y decrease in operating expenses.

Meanwhile, net finance cost increased by 215.0% y/y to NGN0.17 billion (Q2-21: NGN0.05 billion), following a 290.3% y/y increase in finance costs to NGN223.06 million, driven majorly by higher interest on long-term loans (Q2-22: NGN184.82 million vs NGN15.04 million in Q2-21) and bank charges (Q2-22: NGN18.25 million vs NGN13.80 million in Q2-21).

Overall, the company recorded a PBT growth of 80.0% to NGN9.86 billion in Q2-22 (Q2-21: NGN5.48 billion). Following a tax expense of NGN2.52 billion, profit after tax printed NGN7.34 billion (Q2-21: NGN4.26 billion) translating to a growth of 72.1% y/y.

Comment: OKOMUOIL’s Q2-22 performance was impressive and in line with expectations as profitability improved following the rally in global CPO prices despite the ballooning cost pressures in the period. Just as we highlighted in our last earnings update, although we believe margins will remain pressured 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.