• THP’s reported a core net loss of RM0.3m in 1Q18.

• The uninspiring qoq results was due to lower ASP realized for palm products as well as lower sales volume of CPO and PK.

• Core profit was lower by more than 100% yoy as margin was squeezed by lower sales volume and ASP realized as well as higher effective tax rate.

• We revised lower our earnings forecast for FY18 and FY19 to RM39.5m and RM48.6m respectively from RM53.1m and RM60.5m previously. We have NON-RATED recommendation on the stock.

Impacted by lower commodity prices

THP’s core net loss of RM0.3m missed our expectations. Revenue was lower by 27% yoy to RM121.2m on account of lower sales volume of CPO and PK coupled with lower ASP realised for CPO, PK and FFB (Table 1). Its PATAMI fell 67% to RM3.2m due to decline in other income by RM3.87m as a result of lower fair value on government grant recognised. It also saw lower profit from income on investment by RM1.03m due to decline in fixed deposit placement. Higher effective tax rate also contributed to the lower PATAMI.

Improved qoq performance

Although revenue dropped 32% qoq due to lower sales volume and lower ASP of palm products, core loss for the current quarter has narrowed significantly to RM0.3m vs. RM12.1m in 4Q17. This was due to lower CPO production costs of RM1,334/MT as compared to RM1,551/MT in 4Q17, decline in other expenses due to lower impairment of other receivables by RM11.20m and lesser overhead cost by RM8.5m.

Maintain HOLD

On top of the adjustment made for MRFS 161 and 141, we revised our earnings forecast for FY18 and FY19 to RM39.5m and RM48.6m respectively from RM53.1m and RM60.5m previously, as we adjust our ASP of palm products and costs assumptions. We believe THP’s medium-to long term prospect remains promising given its young age profile of 10 years that can provide visible revenue and earnings growth catalyst moving forward. However, the risk is 1) lower than expected ASP of palm products prices, and 2) higher than expected production costs. We have Non-Rated recommendation on the stock.

Source: BIMB Securities Research - 31 May 2018