• THP’s reported a net loss of RM16.4m in 9M18 on the back of decline in revenue by 21% yoy to RM400.7m.

• Although the Group recorded a 4% increase in FFB production, the bottom-line was negatively impacted by lower sales volumes and ASP of palm products compounded by lower FV on government grant and FV change in forestry assets.

• We foresee earnings would further be impacted by lower ASP of palm products and higher operational costs.

• We revised our earnings for FY18 and FY19 to a loss of RM3.2m and RM3.0m respectively from RM8.2m and RM21.1m previously. We have NON-RATED recommendation on the stock.

Impacted by lower sales volume and commodity prices

Adjusted for fair value in biological assets and in forestry, THP’s core net loss of RM22.6m missed our expectations. Revenue was lower by 21% yoy to RM400.7m 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 >100% to RM16.4m due to decline in other income of RM4.42m (-71% yoy) as a result of lower fair value on government grant recognised and fair value change in forestry assets, collectively amounting to c. RM20.3m.

Poor qoq performance

Although revenue increased 2% qoq to RM40.9m, EBITDA was down by 54% at RM18.9m as margin was squeezed by lower ASP of FFB and CPO which was compounded by higher costs of sales and lower FV change in biological assets. Estates production costs increased 21% qoq to RM67.6m versus RM55.9m in 2Q18 whilst FV change in biological assets was c. RM17.4m lower qoq to a deficit RM8.5m vs. surplus of RM8.89m in 2Q18. As a result, the Group recorded a loss before tax and net loss after tax of RM23.7m and RM19.8m respectively mainly due to significantly lower operating profit margin.

Change in forecast

Given the challenging outlook, we revised our forecast for FY18 and FY19 to a loss of RM3.2m and RM3.0m respectively from a profit of RM8.2m and RM21m previously, as we adjust our palm products prices, production and costs assumptions.

We have Non-Rated recommendation on the stock.

Source: BIMB Securities Research - 27 Nov 2018