• Overview. 3Q19 core PBT weakened 35% yoy to RM8.3m due to the effect of lower ASP realised of CPO and PK, and 24% increase in costs of sales to RM75.8m and lower other income. On qoq basis, core PBT improved 97% on higher sales volume and higher ASP realised of CPO and PK.

• Key highlights. 3Q19 recorded an increase in revenue of 24% qoq to RM93.5m resulted from higher sales volume of CPO and PK, and ASP realised of CPO and PK. Sales volume of CPO and PK increased 19% and 25% respectively to 39k tonnes and 8.2k tonnes whilst ASP of CPO and PK realised increased 2% and 5% respectively to RM1,988/MT and RM1,056/MT.

• Against estimates: In-line. 9M19 earnings was within our estimates. PBT increased 9% to RM17.7m as higher sales volume of CPO and PK has sufficiently compensated the drop in ASP of CPO and PK.

• Outlook. Management remains focus on increasing productivity at all levels of operation and to reduce unit cost of production. As such, FFB yield has improved to 11.7MT/ha in 9M19 from 10.7MT/ha in 9M18.

• Our call. Maintain HOLD with TP of RM1.65. We believe earnings growth would be driven by growth in production and improvement in palm oil prices. Growth in production is expected to come from a recovery in palm yield and an increase in new areas entering maturity and higher yielding age brackets. As of nine-month period, harvestable hectare increased 9% yoy to 17,240ha. This will be supported through better estates management practise to increase productivity and to reduce unit cost of production.

Source: BIMB Securities Research - 20 Nov 2019