• THP’s reported a core net loss of RM14.8m in 1Q19.
• The uninspiring results was due to lower ASP realized of PK and sales volume as well as 34% increase in costs of sales.
• Core profit was lower by more than 100% yoy as margin was squeezed by lower ASP realized of palm products as well as higher finance costs by RM4.7m mainly due to adoption of MFRS 16 Leases and cost of sales.
• We maintain our forecast for FY19 and FY20 of a loss of RM3m and a profit of RM10m respectively. We have NON-RATED recommendation on the stock.

Impacted by lower commodity prices

THP’s core net loss of RM14.8m missed our expectations. Revenue was lower by 5% yoy to RM115.3m on account of lower ASP realised for CPO, PK and FFB (Table 2). Although at operational level the Group performance is satisfactory, its PATAMI fell >100% to a loss of RM8.1m due to lower revenue and decline in other income by RM3.3m as a result of no fair value on government grant recognised. It also saw a higher finance costs of RM19.99m vs. RM15.25m in 1Q18 mainly due to the adoption of MFRS16 leases. Higher cost of sales and head office depreciation expenses also contributed to the lower PATAMI.

A loss making quarter

Adjusted for FV changes in biological and forestry assets, as well as oneoff impairment of plantation assets amounting RM446.8m recognised in 4Q18, THP recorded a core loss of RM14.8 vs. profit of RM16.7m in 4Q18. Revenue dropped 3% qoq to RM115.3m on lower ASP of PK and sales volume. This was due to lower FFB and CPO production of 208k MT and 45k MT respectively from 253k MT and 51k MT in 4Q18. The 34% increase in cost of sales to RM97m, also contributed to the lower results.

No change in forecast

We maintain our FY19 and FY20 earnings forecast of a loss of RM3m and profit of RM10m respectively on persistent profit margin pressure moving forward and possibility of further impairment in future.

Nonetheless, we still believe that THP’s long term prospect remains promising given its young age profile of 11 years that can provide visible revenue and earnings growth catalyst moving forward. However, the risks are 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 - 28 May 2019