• THP’s 1H17 net earnings of RM18.4m came in below ours and consensus’ estimates

• Net profit margins improved significantly to 5.7% from 0.2% in 1H16.

• On qoq basis, earnings fell 36% to RM7.2m as lower ASP of palm product dragged revenue lower, aided by lower income from investment and higher finance costs.

• We trimmed our FY17 and FY18 earnings forecast lower as we adjusted our finance cost estimates higher.

• We introduced a new TP of RM1.20 (RM1.19 previously) as we rolled-forward our valuation to FY18 EPS.

Earnings boosted by higher revenue

THP’s 1H17 revenue increased 45% yoy to RM321.5m 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 – due to higher ASP of palm products; ii) lower estates unit cost of production of RM243/MT vs. RM274/MT in 1H16; iii) lower CPO unit cost of production by 13% yoy to RM1,318/MT; and iv) higher other income arising from deferred income on government grant recognized amounting to RM11.94m. We understand that THP has another c. RM45m grant under its forestry assets claimable from government that could be spread over a few more years.

Lower qoq performance

On qoq basis, the decline in net profit is attributable to the effect of lower ASP realized in CPO, PK and FFB as well as lower other income from investment by RM0.37m and higher finance costs by RM0.31m.

Change in earnings forecast, maintain HOLD recommendation

We trimmed our FY17 and FY18 earnings forecast lower to RM43.1m (RM52.5m) and RM53.1m (57.8m) respectively, as we adjusted our finance cost higher. The increase in finance cost took into account lower amount of capitalization for plantation development expenditure. According to management, c. 3,976ha of plantation estates is in its first year of harvesting and 3,797ha in second year harvesting.

Our new TP of RM1.20 (RM1.19 previously) is calculated based on PER of 20x over FY18 EPS.

Source: BIMB Securities Research - 22 Aug 2017