Stripping out foreign exchange gain of RM4.4m, Chin Teck Plantations posted core earnings of RM35.2m (YoY: -57%) for 9MFY23, making up 69% and 68% of our and the street’s full-year expectations, respectively. Despite the weaker-than-expected results, we keep our earnings forecasts as we expect to see better results in the final quarter on the back of improved CPO prices, supported by current El Nino weather pattern. Maintain Neutral with an unchanged TP of RM7.70 based on 11x FY24 EPS. A second DPS of 8sen together with a special DPS of 2sen were declared for the quarter, bringing the YTD DPS to 20sen.

• 3QFY23 topline dipped 44% YoY. During the quarter, the Group’s revenue tumbled 44% YoY to RM47m, mainly led by a decline in both palm oil prices and FFB production. Average CPO price retreated from RM6,091/mt to RM4,080/mt (9MFY23: RM4,028/mt vs 9MFY22: RM5,184/mt). 3QFY23 FFB production dropped 15.3% YoY to 37,992mt (9MFY23: mt vs 9MFY22: mt). Oil extraction rate for CPO weakened from 19.67% to 19% (9MFY23: 19.09% vs 9MFY22: 19.71%). As of 9MFY23, total planted area stands at 11,802ha with 10,108ha of mature area.

• 3QFY23 bottomline tumbled 65% YoY. The Group’s 3QFY23 core profit sank from RM27.6m to RM9.7m, 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 RM6.2m to RM8.5m was attributed to the acquisition of a subsidiary, Fauzi-Lim Plantation S/B. Meanwhile, its Indonesia plantation associate turnaround with a small profit contribution of RM0.9m.

• 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 53.61% 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 - 31 Jul 2023