• HAPL’s 1Q18 core profit slipped 43% yoy to RM18.4m as revenue dropped 16% to RM121.2m due to lower average selling price of palm products.

• Overall, it came in below our and consensus expectations.

• On quarterly basis, core profit fell 17% as a result of lower ASP of palm products and lower sales volume of CPO and PK

• We downgrade to HOLD (from BUY) with new TP of RM2.48 (RM2.89 previously) as we revised our FY18 and FY19 earnings forecast lower to RM124m and RM134m respectively from RM144m and RN151m previously.

Below expectation

HAPL’s 1Q18 PATAMI of RM15.5m was below our and consensus’ estimates. Revenue was down by 16% yoy owing to lower average selling prices of CPO and PK in spite of higher production and sales volume of CPO and PK. The CPO and PK price realized during the period was 21% and 31% lower to RM2,590MT and RM2,262/MT respectively from RM3,268/MT and RM3,282/MT previously in 1Q17. Meanwhile, both CPO and PK sales volume increased by 6% and 24% respectively to 38.4k tonnes and 8.9k tonnes – as this was aided by higher FFB and CPO production during the period. HAPL is highly exposed to weakness in palm product prices as it is a pure planter with single country (Sabah) exposure.

Lower qoq earnings

On quarterly basis, revenue and net earnings fell by 26% and 33% respectively mainly due to lower sales volume of CPO and PK as well as lower ASP of CPO. Sales volume of CPO and PK were 23% and 17% lower to 49.9k tones and 10.7k tones respectively than 4Q17. According to management, the lower sales volume was affected by lower CPO and PK extraction rates as well as FFB production. FFB production during the period slipped 16% qoq to 162.4k tonnes due to seasonal trend and more young palms yet to reach maturity.

Downgrade to HOLD, limited upside

We have revised our earnings forecast for FY18 and FY19 lower by 14% and 11% respectively to RM124m and RM134m. We see no meaningful catalyst for an increase earnings at this juncture. Hence, we downgrade to HOLD with a new TP of RM2.48 (RM2.89 previously). This is based on HAPL’s 2-year historical PE average of 16x, which is applied to FY18 EPS. We expect earnings growth to be dampened by low average selling price of palm products that will partially offset the growth in FFB and CPO production.

Source: BIMB Securities Research - 30 May 2018