• Overview. 3Q19 core profit slipped 39% yoy as revenue dropped 3% on account of lower contribution from property segment, compounded by lower margin from plantation segment on higher cost of sales and weaker ASP realised of palm products. On qoq basis, lower profit from plantation and downstream segments dragged the earnings lower.

• Key highlights. Management guided that the lower qoq earnings for plantation and downstream segments (Table 2) was due to the timing variance on stocks delivery at refinery and higher manuring and upkeep costs during the period.

• Against estimates: below. 9M19 core profit was below ours and consensus’ estimates. Although revenue was higher by 14% to RM1.6b, bottom-line dropped 42% to RM78m on higher costs and lower margins from plantation and property segment.

• Outlook. In addition to continuous earnings contribution from JVs, we are positive on the progress achieved in its Indonesian estates and expect FFB Group production to grow by +13% to 2.36m tonnes this year. We foresee that performance of plantation segment would improve in Q4 2019, given bullish ASP of palm products and higher production, with downstream segment expected to maintain its performance with higher sales volume based on secured orders, and margins improvement in biodiesel operations.

• Our call. Maintain HOLD with TP of RM10.33. We have revised our FY19 and FY20 earnings forecast lower to RM113m and RM151m from RM149m and RM173m respectively, as we adjusted our depreciation and amortisation, and finance costs higher by 2%-7% to RM223m and RM100m respectively in FY19.

Source: BIMB Securities Research - 28 Nov 2019