November 1, 2022/Cordros Report

The Okomu Oil Palm Company Plc (OKOMUOIL) published its Q3-22 unaudited financials yesterday, reporting a standalone EPS of NGN1.27 (Q3-21: NGN2.17). The decline in EPS is primarily due to a 41.9% y/y decline in operating profit. However, the 9M-22 EPS increased by 55.6% y/y to NGN18.92 (9M-21: NGN12.16).

OKOMUOIL’s revenue grew by 27.0% y/y in Q3-22 (9M-22: +61.6% y/y), primarily driven by a sustained growth in its local (+52.4% y/y | 89.2% of revenue) sales line, amid a decline in export (-46.7% y/y | 10.8% of revenue) sales. Sequentially, revenue declined by 53.5% q/q on a quarter-on-quarter basis.

Gross margin contracted by 33.77ppts to 49.9% in Q3-22 (Q3-21: 83.6%) as cost of sales (+289.0% y/y) grew faster than revenue (+27.0% y/y). We believe the higher costs emanated from the impact of higher crude oil prices on (1) energy costs and (2) the cost of fertilizers. Consequently, operating margin declined by 17.18ppts to 14.5% (Q3-21: 31.7%) amid a 13.5% y/y decrease in operating expenses. In 9M-22, the gross margin declined by -18.55ppts to 71.3% (9M-21: 89.8%), while operating margin increased by 210bps to 50.0%.

Net finance cost came in at NGN179.98 million (vs net finance income of NGN80.79 billion in Q3-21), following a 489.5% y/y increase in finance costs and a 97.7% y/y decline in finance income. The growth in finance costs is due to higher bank charges (Q3-22: NGN18.47 million | Q3-21: NGN6.51 million) and interest on long term loans (Q3-22: NGN160.36 million | Q3-21: NGN13.93 million).

Overall, profit before tax declined by 49.9% y/y to NGN1.19 billion in Q3-22. Following a tax credit of NGN24.41 million, profit after tax came in at NGN1.21 billion (Q3-21: NGN2.07 billion) translating to a 41.3% y/y decline.

Comment: OKOMUOIL’s Q3-22 performance was underwhelming, as the significant increase in cost of sales underpinned a significant dip in profitability. Though we acknowledge 9M-22 paints a different picture following the significant positive outturn OKOMUOIL recorded in H1-22. We expect OKOMUOIL to see out the year on a positive note, given that preliminary numbers for 2022 already surpass 2021FY print. Our estimates are under review.