Excluding i) PPE written off (RM0.2m), ii) realized FX gain (RM2.5m) and MI (RM19.4m), the group saw a flattish growth in its 1HFY24 core profit at RM80.5m. However, the results were below our and the consensus full-year expectations, making up only 37% and 41%, respectively. We cut our FY24- 26F earnings forecast by 5%-9% to reflect struggling timber business. Maintain Outperform call with a lower SOP-based TP of RM4.88. No dividend was declared for the quarter.

• 2QFY24 sales dipped to RM366.7m. Sales slipped 4.8% YoY to RM366.7m, dragged by a slump in timber sales despite stronger palm oil sales recorded. Timber sales tumbled 38.9% YoY to RM46.8m as log sales tumbled 73.7% YoY to RM9.5m while plywood sales dipped 6.9% YoY to RM39m. 2QFY24 average log export price tumbled 23% YoY to USD196/cu m while plywood price sank from USD557/cu m to USD473/cu m. Log export volume dipped 68.2% YoY to 9,084 cu m while plywood exports volume climbed 1.5% YoY to 13,829 cu m. 
  
  On the other hand, palm oil sales rose 3.7% YoY to RM318.1m. 2QFY24 average CPO selling price increased from RM3,735/mt to RM4,000/mt  while 2QFY24 FFB production rose 4.2% YoY to 149,054mt (1HFY24: 276,228mt, 2.1% YoY). 2QFY24 OER fell from 19.8% to 19.1% (1HFY24:9.4% vs 1HFY23: 19.77%).
   
• 2QFY24 core profit slipped 3% YoY. Core profit pulled back from RM40.6m to RM39.4m, attributed to a loss in timber segment. The timber segment was in the red with a loss of RM5.8m, as both log and plywood suffered a loss of RM2.4m and RM2.3m, respectively. Plantation earnings grew 18.7% YoY to RM59m. 2QFY24 all-in CPO production cost stood at RM1,800/mt (PK-credit: RM400/mt) while 1HFY24 CPO production cost averaged at RM2,300/mt (PK-credit: RM400/mt). Meanwhile, earnings contributions from 29.5%-owned Sarawak Plantation and JV-owned refinery nearly doubled to RM8.6m.
   
• Outlook. Due to the slow production growth in the 1H, management has lowered its FFB production target from 770k to 720k mt. Both Muriate of Potash and compound had retreated from RM1,600/mt in early-2024 to RM1,400/mt. It had replanted about 500h in the 1H and there were minimal new planting activities. All-in average CPO production cost is expected to remain at RM2,050/mt (PK-credit: RM350/mt), implying a steep decline in 2H. Due to the adverse weather in the first half, log production was badly affected by logistics issue. On the positive note, management expects production to recover starting from July. Based on the sensitivity analysis, its PAT will fluctuate by RM12m for every RM100/mt change in CPO price movement. Lastly, it has allocated capex of RM64m with 11m dedicated for the timber segment while RM43m for the plantation segment (for PPE and replanting) and remaining RM10m for palm oil mill upgrade.

Source: PublicInvest Research - 27 Aug 2024