• Overview. 2Q19 core profit before tax of RM4.2m declined by 31% yoy and 56% qoq due to the effect of lower ASP realised of CPO and PK, and increase in costs of sales of RM65.7m (18% qoq and 24% yoy). Core PBT margin squeezed to 5.6% against 13.7% in 1Q19 and 9.1% in 2Q18.

• Key highlights. 2Q19 recorded an increase in revenue of 9% qoq and 13% yoy to RM75.7m as higher sales volume of CPO and PK sufficiently compensated the drop in ASP realised of CPO and PK.

• Against estimates: Below. 1H19 core profit was below our estimates. Nonetheless, core PBT increased more than 100% to RM13.7m as higher sales volume of CPO and PK has sufficiently compensated the drop in ASP of CPO and PK. Sales volume of CPO and PK had increase by c. 32% and 19% respectively to 62.4k tonnes and 12.8k tonnes, whilst ASP realised of CPO and PK had decreased c. 17% and 42% to RM1,968/MT and RM1,074/MT (Table 2).

• Outlook. Management remains focus on increasing productivity at all level of operation and to reduce unit cost of production. As such, FFB yield has improved to 3.88MT/ha in 1H19 from 3.34MT/ha in 1H18.

• Our call. Maintain HOLD with TP of RM1.65. Off note, we have revised our FY19 and FY20 earnings forecast lower to RM16.6m and RM25.2m respectively to reflect our adjustment on cost and ASP of CPO and PK. We look forward to seeing earnings growth in the company through better estates management practise to increase productivity and to reduce unit cost of production.

Source: BIMB Securities Research - 16 Aug 2019