• Overview. 2Q19 core profit came in lower yoy attributable to the losses in upstream operations and reduced contribution from downstream operations. On qoq basis, core profit was adversely affected by low production, low ASP realised and higher production cost, accompanied by low contribution from downstream operations.

• Key highlights. 2Q19 saw net tax income of RM83m benefited from the disposal of subsidiary PT Mitral Austral Sejahtera (PT MAS).

• Against estimates: below. 1H19 core profit was below ours and consensus’ estimates as higher FFB production growth and improved downstream earnings were not sufficient to mitigate the weak ASP of palm products.

• Outlook. Management remains focused to raise approximately RM1b in FY19 from the asset monetisation exercise by disposing non-core and non-strategic assets. The decision to sell its investment in Liberia with 3rd party is expected to be finalised in 3-4 months’ time. If not, they will hand over back the concession to the Liberian government.

• Our call. Maintain HOLD with new TP of RM4.83 (RM5.03 previously) based on P/BV of average IOI and KLK of 2.5x and BV/share of RM1.93. Given the earnings results, we revised our forecast for FY19 and FY20 lower to RM132m and RM593m respectively from RM727m and RM874m as we adjusted our ASP of palm products, costs and effective tax rate.

Source: BIMB Securities Research - 3 Sept 2019