• THP’s 1Q17 net earnings of RM11.2m rebounded more than 100% yoy. On qoq, earnings fell 91% as 4Q16 earnings was boosted by a gain on disposal of subsidiary, THP Gemas, amounting to RM115.9m.

• Earnings came in-line by 21%-23% of our and consensus’ estimates.

• PBT rebounded to RM20.3m in 1Q17 from a loss of RM15.7m in 1Q16 mainly due to higher gross profit and higher other income arising from deferred income on government grant recognized amounting to RM6.1m.

• We keep our FY17 and FY18 earnings forecast unchanged and maintain our TP of RM1.19 on PER of 20x over FY17 EPS.

Earnings within expectations

THP’s 1Q17 net profit of RM11.2m came in-line with our and consensus’ expectation. Revenue increased 85% yoy (-2% qoq) to RM166.1m boosted by higher sales in palm products as well as management fees received in managing c. 20,923ha ha of Tabung Haji group’s plantation assets. Net profit rebounded more than 100% yoy mainly driven by i) higher gross profit – higher ASP of palm products; ii) lower estates unit cost of production of RM260/MT vs. RM281/MT in 1Q16 and 4Q16; iii) lower CPO unit cost of production by 16% yoy to RM1,357/MT; and iv) higher other income arising from deferred income on government grant recognized amounting to RM6.1m. We understand that THP would have another RM50m grant under its forestry assets claimable from government that could be spread over a few more years.

EBITDA margin expanded

The continuous effort by management to improve FFB yield and CPO extraction rates, as well as keeping costs level low, has resulted in EBITDA margin for 1Q17 to expand to 32.1% from 7.1% in 1Q16. We expect to see further margins improvement in the coming quarter as CPO price realized is expected to be at a range of RM2,700/MT-RM2,900/MT, whilst FFB production has also improved. According to management, ASP achieved so far is c. RM2,800/MT (Apr-May 2017) with forward sales for Jun 2017 for Peninsular is c. RM2,900/MT.

No change in forecast

We are keeping our FY17 and FY18 earnings forecast unchanged and maintaining our TP of RM1.19 on PER of 20x over FY17 EPS. The valuation is 0.5+SD above its 3-yr average PER of 17x justified by its long-term prospect given that it has i) young age profile of 10 years that can provide visible revenue and earnings growth catalyst; and ii) 68% in planted area is made up of immature to young mature estates – hence providing potential yield enhancement as more trees coming into maturity in the near future. We have NON-RATED recommendation on the stock.

Source: BIMB Securities Research - 25 May 2017