Stripping out fair value loss on biological assets, Chin Teck Plantations turned in 1HFY23 core earnings of RM32.2m (YoY: -29%), making up 41% and 44% of our and the street’s full-year expectations, respectively. In view of the unexpected losses incurred by its Indonesian plantation associate and a surge in administrative expenses, we cut our FY23-25F earnings forecasts by 13%-34%. Maintain Neutral with a lower TP of RM7.70 (previously RM8.87) based on 11x FY24 EPS.

• 2QFY23 topline slipped 16.3% YoY. During the quarter, the Group’s revenue dropped by 16% YoY to RM46.1m, mainly led by a steep decline in palm oil prices despite chalking stronger FFB production. Average CPO price retreated from RM5,034/mt to RM3,965/mt (1HFY23: RM4,006/mt vs 1HFY22: RM4,645/mt). 2QFY23 FFB production jumped by 31.3% YoY to 47,728mt (1HFY23: 110,351mt vs 1HFY22: 83,006mt). Oil extraction rate for CPO weakened from 19.66% to 18.47% (1HFY23:19% vs 1HFY22: 19.72%). As of 1HFY23, total planted area stands at 11,365ha with 9,638ha of mature area.

• 2QFY23 bottomline tumbled 73% YoY. The Group’s 2QFY23 core profit sank from RM18m to RM5m, weighed down by a significant rise in CPO production cost due to a jump in cost of fertilizer and administrative expenses as well as weaker palm oil selling prices. The surge in administrative expenses from RM7.2m to RM11.4m were attributed to the acquisition of a subsidiary, Fauzi Lim Plantation S/B. Meanwhile, its Indonesia plantation associate also contributed to the weaker financial performance as it incurred a loss of RM4m.

• Disruption to JV-owned Indonesian plantation continues. Since 2012, the unrest in the surrounding villages located in the vicinity of the plantations in Lampung Province, Indonesia, has seriously affected the routine harvesting activities. As of now, the total accessed area is about 53.6% of the total planted area. Meanwhile, harvesting of the mature area located in South Sumatera Province has also been delayed due to the unrest in the neighbouring estate. Commencement of harvesting is pending clearance by the relevant authorities.

Source: PublicInvest Research - 28 Apr 2023