July 31, 2023/Cordros Report
The Okomu Oil Palm Plc (OKOMUOIL) published its Q2-23 unaudited results on Friday (28 July), reporting a 17.9% y/y decline in standalone EPS to NGN6.31 (Q2-22: NGN7.69), bringing the H1-23 EPS to NGN16.98 (H1-22: NGN17.65). The negative earnings outturn was influenced by a decline in revenue (-19.1% y/y) and higher finance cost (+327.6% y/y).
Revenue declined by 19.1% y/y in Q2-23 (H1-23: -0.4% y/y) primarily due to contraction in sales – local (+19.6% y/y | 93.3% of revenue) and export (+12.7% y/y | 6.7% of revenue). We attribute the subdued growth to the lower CPO prices (Average CIF Rotterdam CPO price: USD841.30/mt in Q2-23 vs USD1,494.62/mt in Q2-22) induced by the excess stock from top producers Indonesia and Malaysia.
Gross margin contracted by 741bps to 59.1% in Q2-23 (Q2-22: 66.5%) following the dip in revenue (-19.1% y/y). Against the preceding, the operating margin declined by 21.50ppts y/y to 28.0% (Q2-22: 49.5%), with further pressure stemming from a 47.9% y/y surge in operating expenses.
Net finance costs expanded by 243.7% y/y in Q2-23, following a 327.6% y/y increase in finance costs and a 70.4% y/y reduction in finance income. Notably, OKOMUOIL recorded an exceptional income of NGN4.37 billion (Q2-22: Nil) in the quarter, attributable to the export expansion grant disbursed by the Nigerian Export Promotion Council.
Overall, PBT declined by 18.6% y/y to NGN8.02 billion in Q2-23 (Q2-22: NGN9.86 billion). Following a tax expense of NGN2.00 billion, profit after tax settled lower at NGN6.02 billion, a 17.9% y/y decline from Q2-22.
Comment: OKOMUOIL’s underperformance in the period highlights the effects of lower CPO prices on their revenue. Surprisingly, however, the efficiency gains from the Okomu II extension facility upgrade have been inconsequential in supporting revenue growth amid the tempered prices. Considering the historical trend of weaker revenue in the second half of the year, we believe the company’s profitability may remain inhibited for the rest of the year. Our estimates are under review.
