FSDH Initial Reaction: Okomu Oil 1Q23 results
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May 2, 2023/FSDH

Key Performance Highlights:

• Okomu Oil continued its growth momentum in 1Q23. Revenue surged 18.2% YoY to N24.2 billion in 1Q23 compared to N20.5 billion in 1Q22. The revenue growth was primarily driven by a 20.7% YoY increase in local sales (94% of 1Q23 sales), slightly offset by an 11.5% YoY decline in exports (6% of 1Q23 sales).
   
• Cost of Sales climbed 51.8% YoY to N4.4 billion in 1Q23, resulting in a 402 bps YoY contraction in Gross Margin to 81.9% in 1Q23. The cost of sales rose sharply due to a 56.5% YoY rise in palm oil cost (72% of the 1Q23 cost of sales) to N3.1 billion, while rubber cost (28% of the 1Q23 cost of sales) grew 41.1% YoY to N1.2 billion in 1Q23. The company continues to face elevated cost pressures in 1Q23, with Net operating expenses jumping 20.3% YoY to N4.9 billion in 1Q23. Consequently, the operating profit grew 10.5% YoY to N15.1 billion in 1Q23.
   
• Net finance cost increased 92.9% YoY to N253 million in 1Q23 from N131 million in 1Q22, primarily due to an increased interest on the long-term loan that jumped 1.83x to N247 million in 1Q23. Okomu Oil paid an effective tax rate of 31.6% in 1Q23 versus 30.0% in 1Q22, resulting in a net profit of N10.2 billion in 1Q23, against N9.5 billion in the prior period. Okomu reported an earnings per share of N10.67 compared to N9.96 in 1Q22. The company’s EBITDA and operating margins contracted by 415 bps and 436 bps YoY in 1Q23.
   
• Looking at the sequential performance, the company recorded a solid 167.0% QoQ rise in revenue to N24.2 billion in 1Q23. The company’s cost of sales was down 18.5% QoQ to N4.4 billion in 1Q23 (4Q22: N5.4 billion). With significantly higher revenues, Okomu reported an operating income of N15.1 billion in 1Q23 against an operating loss of N97 million in 4Q22. Moreover, as the net finance cost declined 84.3% QoQ, the company recorded a net profit of N10.2 billion in 1Q23 versus a net loss of N714 million in 4Q22.declining 3.8% QoQ. The company’s cost of sales was down 36.6% YoY to N5.4 billion in 4Q22 (but up 14.1% on a sequential basis). With significantly higher net operating expenses, Okomu reported an operating loss of N97 million in 4Q22. Moreover, as the net finance cost driven by interest on long-term loans soared in 4Q22, the company recorded a net loss of N714 million in 4Q22 versus a net loss of N65 million in 4Q21.

Market Reaction: The investor reaction to the solid 1Q23 results was muted as the Okomu stock remained unchanged at N171.50, versus a 0.20% loss for the All-Share Index (2/5).

Okomu Oil Earnings Highlight 1Q23

Source: Company Financials, FSDH