• THP reported a core net loss of RM3.6m in FY18 on the back of 25% decline in revenue of RM519.3m.

• Although the Group recorded a 3% increase in FFB production, the bottom line was negatively impacted by lower sales volumes and ASP of palm products, compounded by higher finance costs and higher negative fair value changes.

• Including impairment of RM446.8m on plantation assets, THP’s recorded a PATAMI loss of RM594.6m vs. profit of RM22.4m in FY17.

• We maintain our forecast for FY19 and FY20 to a loss of RM3.0m and a profit of RM13.3m respectively. We have NON-RATED recommendation on the stock.

Impacted by lower sales volume and commodity prices

Adjusted for fair value changes in biological and forestry assets, as well as impairment and one-off charges, THP’s core net loss of RM3.6m missed our expectations. Revenue was lower by 25% yoy to RM519.3m on account of lower sales volume of CPO and PK coupled with lower ASP realised for CPO, PK and FFB (Table 2). Its PBT fell >100% to RM231.3m due to decline in other income of RM8.3m (-49% yoy) as well as higher negative fair value changes on biological assets and forestry, collectively amounting to c. RM144.2m vs RM0.2m in FY17.

Another loss making quarter

On quarterly basis, PBT was down by more than 100% to RM217.2m dragged by lower sales volume and ASP realised of palm products, compounded by higher costs of sales of RM147.9m (+17% qoq). Estates production costs increased 27% qoq to RM86.1m versus RM67.6m in 3Q18 whilst negative FV changes was higher at c. RM148m vs. RM8.5m in 3Q18. The Group also incurred impairment of RM446.8m in 4Q18 mainly from plantation assets which has been identified for divestment in the next 12-months. In addition, including the impairment, write-off, fair vale changes and one-off charges, THP’s loss before tax would have widen further to RM664m vs. a loss of RM23.7m in 3Q18.

No change in forecast

We maintain our FY19 and FY20 earnings forecast to a loss of RM3m and profit of RM13m respectively on persistent margins pressure moving forward and possibility of further impairment in future.

We have Non-Rated recommendation on the stock.

Source: BIMB Securities Research - 28 Feb 2019