• Overview. 2Q19 core loss came in higher yoy as revenue weakness on lower ASP of palm products and CPO volume transacted were compounded by higher finance costs and head-office depreciation. On qoq basis, in addition to lower revenue, the losses was also attributed by higher finance costs and estates production costs by RM8.5m mainly due to manuring cost during the period.

• Key highlights. 2Q19 saw higher finance cost by RM5.2m (1H19: RM9.9m) mainly due to adoption of MFRS 16 Leases.

• Against estimates: inline. 1H19 core loss was below our estimates as lower revenue and higher finance costs dragged the results lower; EBITDA margin dropped to 15% from 25% in 1H18.

• Outlook. THP is highly exposed to the movement in palm products prices as it is a pure planter and thus, earnings is highly correlated to ASP of palm products and production. We remain cautious over its prospects as outlook of palm oil industry remains challenging. Nonetheless, long-term prospect remains promising given its young age profile of 11 years that can provide visible revenue and earnings growth moving forward.

• Our call. We have Non-Rated recommendation on the stock. Given the earnings results, we revised our forecast for FY19 and FY20 to a loss of RM55.4m and profit of RM1.3m respectively from a loss of RM3m and profit of RM10.2m as we adjusted our ASP of palm products, costs and plantation’s margin.

Source: BIMB Securities Research - 6 Sept 2019