• THP’s reported a core net loss of RM11m in 1H18 on the back of decline in revenue of 19% yoy to RM259.8m.

• Earnings for 2Q18 was lower qoq and yoy to RM0.2m as a result of lower ASP realized for palm products and sales volume of PK compounded by higher administrative expenses and absence of fair value on government grant during the quarter.

• We estimate that earnings moving forward would be impacted by lower ASP of palm products as well as higher operational costs.

• We revised our earnings for FY18 and FY19 to RM8.2m and RM21m respectively from RM28.8m and RM40.1m previously. We have NON-RATED recommendation on the stock.

Impacted by lower commodity prices

THP’s core net loss of RM11m missed our expectations. Revenue was lower by 19% yoy to RM259.8m 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 90% to RM3.4m due to decline in other income of RM4.28m (-68% yoy) as a result of lower fair value on government grant recognised.

Poor qoq performance

Although revenue increased 14% qoq to RM138.6m, PBT was down by 70% at RM2.2m as margin was squeezed by lower ASP of CPO and PK, which was compounded by higher operational costs. CPO and estates production costs increased to RM1,433/MT and RM257/MT respectively as compared to RM1,334/MT and RM249/MT in 1Q18. Decline in other income by RM3.19m due to absence of FV on government grant recognised during the period also aided to the weak results.

Change forecast

Given the earnings results, we revised our forecast for FY18 and FY19 to RM8.2m and RM21m respectively from RM28.8m and RM40.1m previously, as we adjust our production and costs assumptions. We believe however, that 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 to earnings forecast 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 - 30 Aug 2018