We are initiating coverage on Sarawak Oil Palms (SOP) with a Buy rating and a 12-month target price of RM5.22. We believe SOP is undervalued at current levels, trading at a forward PE of only 8.5x CY11. Given its young age profile, the company is set to see years of strong production growth ahead. Coupled with its strong balance sheet and management expertise, we think this stock is due for an upward rerating. The downside is protected by its low EV per planted hectare of USD9,276, the cheapest among stocks in our coverage.
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