Broker: Maybank Investment Bank Berhad
Date of Report: July 10, 2025

Sarawak Oil Palms: A Value Stock with Strong Upside and Growing Cash Pile in 2025

Introduction: Sarawak Oil Palms’ Unique Value Proposition

Sarawak Oil Palms Berhad (SOP) stands out as one of Malaysia’s leading integrated palm oil producers, with a strategic focus on both upstream and downstream operations in Sarawak. In this latest analysis, Maybank Investment Bank Berhad highlights the company’s robust financial performance, attractive valuations, and promising growth outlook for the coming years. Trading at approximately 7x FY25E PER and 0.7x PBV, SOP is positioned as a compelling value stock with significant room for capital appreciation.

Company Overview and Investment Case

• Stock Price (as of July 10, 2025): MYR 3.20
• 12-Month Target Price: MYR 5.09 (+64% potential upside)
• Market Capitalization: MYR 2.9 billion (USD 673 million)
• Major Shareholders: Shin Yang Group of Companies (46.4%), State of Sarawak (28.2%)
• Free Float: 28.0%
• Shares Issued: 894 million

SOP’s share price has demonstrated resilience and upward momentum, outperforming the Kuala Lumpur Composite Index over the past year, reflecting investor confidence in its fundamentals and growth prospects.

Upstream Operations: Production Growth and Cost Management

• FFB Production Target for FY25: 5% YoY growth from 1.25 million tonnes in FY24
• Weighted Average Age Profile: 13 years, supporting favorable yields
• Replanting Target: 4,000–5,000 hectares annually to enhance future yields
• All-in Cost of Production for FY25E: MYR 2,500 per tonne (marginally higher YoY)

SOP’s upstream segment remains the cornerstone of its earnings, with a strategic focus on sustainable yield improvements and efficient cost management. The company’s mature age profile underpins its productive capacity, while ongoing replanting initiatives are set to sustain long-term output growth.

Downstream Expansion: Diversification and Value Addition

• Downstream Complex: 100-acre facility near Bintulu Port
• Refining Capacity: 2,300 tonnes per day (tpd); utilization rate >80% in FY24
• Biodiesel Capacity: 600 tpd, supplying Sarawak’s biodiesel mandate
• Product Portfolio Expansion: New nutraceutical and cosmeceutical products under the “Avreca” brand

Despite strong refining margins in FY24, SOP anticipates more challenging conditions in FY25 due to increased CPO supply and competition from Indonesia. Nevertheless, the company’s downstream operations continue to provide stable margins, especially from biodiesel and branded consumer products. The move into specialty products and health-oriented offerings signals SOP’s intent to further diversify revenue streams.

Property Development: Unlocking Land Value

SOP’s property development arm has consistently contributed small but steady earnings since 2017, averaging less than MYR 3 million in annual EBIT. With new project launches planned in Kuching (about 30 hectares), property earnings are expected to see incremental growth in the coming years.

Financial Performance and Projections

Highlights:

• Core net profit is projected to remain robust, growing from MYR 300 million in FY23 to MYR 476 million by FY27.
• DPS is expected to rise to 18 sen by FY27, underpinned by strong free cash flow and a growing net cash position (MYR 1.1 billion as at March 31, 2025).
• Healthy free cash flow yields, projected at 14–17% over FY25–FY27.
• ROAE and ROAA are set to remain at double-digit levels, reflecting efficient capital usage and operational profitability.
• Balance sheet strength: SOP is expected to maintain a net cash position through FY27, with total assets growing steadily.

Operational Efficiency and Capital Allocation

• Capex Focus: Annual capital expenditures are primarily directed at replanting, totaling about 4% of revenue.
• Dividend Policy: Payout ratio is expected to average about 31–34% over FY25–FY27, with strong dividend cover (3.0–3.3x).
• Liquidity: The current ratio improves steadily from 4.2 in FY24A to 5.6 by FY27E, underlining increasing liquidity and financial flexibility.

Key Risks and Sector Considerations

SOP’s earnings and share price are subject to the following sector and company-specific risks:

• Weather anomalies impacting FFB output
• Lower-than-expected CPO prices
• Adverse policy changes in major importing countries
• Unfavorable regulatory shifts in Malaysia or Indonesia
• Sharp drops in crude oil prices, affecting biodiesel economics
• Weaker competing vegetable oil prices (soybean, rapeseed)

Valuation and Recommendation

• Current Valuation: Trading at ~7x FY25E PER, 0.7x PBV, and an EV/planted hectare of ~MYR 23,000 (below the replanting cost of MYR 25,000/ha)
• Target Price: MYR 5.09, based on 11x FY25E PER (8-year mean)
• Recommendation: BUY

SOP’s low valuation, strong cash generation, and improving profitability metrics make it a standout value play in the regional plantations sector. Investors can expect both capital gains and an attractive dividend yield, supported by a robust balance sheet and prudent capital management.

Historical Ratings and Price Performance

Over the past three years, analyst recommendations on SOP have moved from HOLD to BUY as the company’s fundamentals strengthened and its share price outperformed the broader market. The stock has consistently delivered on operational improvements and financial discipline.

Conclusion: Why Sarawak Oil Palms is a Value Buy for 2025 and Beyond

Sarawak Oil Palms Berhad continues to demonstrate operational excellence, disciplined financial management, and strategic expansion into higher-margin downstream and property segments. With a clear growth roadmap, strong free cash flow, and a solid balance sheet, SOP offers investors a rare combination of value, yield, and growth in the Malaysian plantation sector.
SOP is a compelling BUY for those seeking both defensive qualities and upside potential in the palm oil space for 2025 and beyond.