July 29, 2024/Cordros Report
Okomu Oil Palm Plc (OKOMUOIL) published its Q2-24 unaudited financials on Friday (July 26), reporting a standalone EPS of NGN5.36 in Q2-24, which represented a 15.1% y/y decline from the prior year (Q2-23: NGN6.31). The weaker outturn resulted from a marked increase in exchange losses (+288.63% y/y). Accordingly, H1-24 EPS stood at NGN21.17 (H1-23: NGN16.98).
Revenue grew by 92.3% y/y in Q2-24, primarily driven by solid growth in sales – local (+52.4% y/y | 89.2% of revenue) and export (-46.7% y/y | 10.8% of revenue). We believe the devaluation of the local currency triggered an increase in local crude palm oil (CPO) prices. However, on a q/q basis, revenue declined by 27.5%. While management is yet to provide clarity on the quarterly decline, we suspect that it may have been induced by lower volumes during the period.
Gross margin decreased by -23.01 ppts y/y to 36.1%, reflecting substantial cost pressures with cost of sales growing significantly by 200.5% y/y. We believe the higher costs emanated from the impact of the marked currency devaluation on the cost of fertilizers amid the elevated inflationary environment. For H1-24, gross margin printed 59.4%, representing a 13.30ppts y/y decline. Against the preceding, EBIT margin fell by 10.03ppts y/y to 18.0% (H1-24: -793bps y/y to 40.7%), further compounded by a 12.0% increase in operating expenses.
OKOMUOIL recorded a positive net finance income in the period, following a significant increase in finance income to NGN3.50 billion (Q2-23: NGN14.83 million), which offset the 3.0x y/y jump in finance cost to NGN2.93 billion (Q2-23: NGN953.72 million). Specifically, OKOMUOIL recorded a net exchange gain of NGN799.88 million (vs net exchange loss of NGN681.40 million in Q2-23), following a higher exchange gain of NGN3.50 billion (Q2-23: NGN13.73 million) and exchange loss of NGN2.70 billion (Q2-23: NGN695.13 million).
Overall, PBT declined by 22.3% y/y to NGN6.24 billion in Q2-24 (H1-24: +27.8% y/y to NGN29.27 billion). Following a tax expense of NGN1.12 billion, profit after tax printed NGN5.11 billion (H1-23: +24.7% y/y to NGN20.20 billion).
Comment: OKOMUOIL’s Q2-24 performance remains in line with expectations, given the impact of currency devaluation on CPO prices, even as the effects of the higher energy and plantation costs eroded margins. Despite headwinds, we still envisage sturdy topline growth in the ensuing quarters of 2024E to shore earnings. Our estimates are under review.
