MP Evans: H1 2017 Results
MP Evans (LON:MPE), the Indonesian palm oil producer, has announced interim results for the period ended 30 June 2017.
• Revenue: US$57.5m, +89.4% YoY (H1 2016: US$30.4m)
• Adjusted Operating profit: US$15.9m (H1 2016: US$3.4m)
• Fresh fruit bunches (FFB) processed (own, majority-owned estates): 213,800t, +25.5% YoY (H1 2016: 170,300t)
• Crude palm oil (CPO) produced: 70,500t, +55.6% YoY (H1 2016: 45,300t)
• Interim dividend: Increased to 5.0p (H1 2016: 2.25p)
VSA Comment
As expected, MPE continues to increase its cropping levels as its young estates develop into maturity and, more specifically for H1, production levels in the sector recover from the 2015/16 El Niño. Stronger CPO prices (+10% YoY) and a c15% YoY fall in its cost of production (US$380/t) also contributed to a much improved financial performance, with its adjusted operating profit increasing by more than 4.5x.
In terms of the outlook for pricing, palm oil prices have increased c10% over the last month, touching six month highs in Malaysia, as expectations of a relatively muted peak production cycle have been played out in the market. The latest data from South East Asia suggests that for July and August at least, these expectations have not yet been realised to the extent that some were forecasting.
However, we are likely to see strong near-term export demand with the approach of the Mid-Autumn Festival in China (4 October) and the Hindu festival of Diwali (19 October). Although this is likely to be supportive to CPO pricing in the near-term, production will likely be strong in September and October, which may lead to weaker pricing as we move towards the end of the year. Last week’s upgrade to the US soybean crop by the USDA is also a bearish indication for vegetable oil pricing (soybean oil premium over Malaysian CPO is currently around its historic average at cUS$110/t).
Having completed c99% of its £5m share buy-back programme, last Friday MPE announced that it would be extending the programme by a further £2.5m. Extrapolating from the rate of share purchases so far, this extra allocation should last through to at least mid-January. Given the low liquidity in the stock (the buy-back has accounted for c20% of all traded volume since the scheme began), we believe this programme is an important factor in maintaining the share price at the current levels.
Having perhaps made a slower start on its post-KLK bid strategy than we had originally expected, MPE has now impressively disposed of its Agro Muko joint venture (and paid a special dividend of 10p per share as a result), acquired a new majority-owned 10,000ha newly planted plantation in Kalimantan, extended its share buy-back scheme and now more than doubled its interim dividend.
With MPE anticipating that its crop levels will double between 2016 and 2020 (as they did between 2010 and 2016), it is clear that the company is set for significant levels of growth in the coming years, which is precisely the reason it remains such an attractive acquisition target.