April 5, 2023/InvestmentOne Report

• Revenue growth: down 3.77% q/q, up 58.64% y/y
• Decline in gross profit margin: down 932bps q/q, 204bps y/y
• Downtick in PBT margin: down 314bps q/q, 345bps y/y
• Contraction in PAT margin: down 207bps q/q, 350bps y/y 
  

Surge in Topline Performance

Okomu Oil Palm Plc released its FY 2022 audited financial report at the end of March, and it showed that revenue was up by 58.64% y/y to N59.32 billion in FY 2022 from N37.39 billion in the prior year, 2021. Given that the company is involved in the business of production and processing of palm oil and rubber sales, topline growth benefitted immensely from the surge in global commodities prices driven by the geopolitical tensions. A breakdown of the revenue segment showed that revenue from palm oil produce (the major product line) rose by 69.20% y/y to N53.75 billion, (accounting for 90.60%) of total revenue during the period while the palm oil processing segment increased by 21.91% y/y to close the year at N78.18 million. However, gross profit margin declined by 204bps to 80.19%, as revenue growth (+58.64% y/y) outpaced the cost of sales (+76.84% y/y).

Macroeconomic Instability Affects Bottomline

Alongside revenue advancement, increasing input costs further weighed on the company’s performance due to elevated inflationary pressures, as cost of sales skyrocketed 76.84% y/y. Specifically, 90% of Okomu’s major raw material are sourced locally while the rest is imported or gotten from third party. Furthermore, depreciation of local currency also contributed to the higher cost of sales. Moving forward, operational costs advanced by 57.05% to N25.02 billion In FY 2022, driven by increase in selling and administration expenses (+47.17%). Operating profit held steady despite the expansion in operating costs, as it advanced by 45.93% y/y to N23.52 billion from N16.12 billion in the prior period.

As such, the profit before tax and bottomline performance rose by 45.93% y/y and 40.65% y/y to N23.52 billion and N16.23 billion, respectively. Hence, the company declared an increase in dividend payout to N21.00 per share for the period, from N8.00 in the previous period.

Sequential Performance

On a q/q basis, gross profit declined by 21.75% as revenue fell (-3.77%) while cost of sales within the period rose (+14.10%). Consequently, gross margin contracted by 932bps. In line with the drop in gross profit, PBT declined by 243.15% underpinned by increase in OPEX (+12.36%) and net finance cost (+801.69%). Hence, PAT shrank by 158.78% q/q.

Outlook

Going forward, without a possible end in sight for the Russia-Ukraine war, we expect commodities prices to remain elevated.  Thus, the positive momentum in revenue growth sustained. However, prevailing economic realities emanating from high inflation, weak consumer demand, persistent and FX liquidity constraint should continue to undermine gains in the near term.

Source: Company’s Financials, Investment One Research