• Overview. HAPL’s 3Q19 PBT came-in higher yoy to RM2.5m as revenue increased 33% yoy to RM87.5m on account of higher sales volume of CPO and PK. On qoq basis, the improved results were aided by higher sales volume of CPO and marginally higher ASP for both CPO and PK.

• Key highlights. Absence of tax benefit derived from the investment tax allowance on the Group’s biogas plant in 3Q19 as benefit in 3Q18, HAPL’s PAT dropped 97% yoy to RM102k vs. RM3.6m in the preceding year correspondence quarter, 3Q18.

• Against estimates: below. 1H19 PBT was below ours and consensus’ estimates as weak ASP of palm products outweigh the higher sales volume of CPO and PK during the period. This was aided by higher operating expenses and depreciation of RM296m (+7%) and RM67m (+14%) respectively.

• Outlook. Given HAPL is highly exposed to the movement in palm product prices as it is a pure planter with single state exposure, we expect earnings growth will progress in the coming quarter, in view of improved palm product prices. Nonetheless, we do believe that earnings upside might be limited and/or at risk by the lower FFB and CPO production, and higher operating costs.

• Change in forecast. Following this result, we tweaked our FY19’s PBT lower to RM8.6m vs. RM14.4m previously as we adjusted higher our depreciation (17%) and operating costs (3%) to RM88m and RM326m respectively.

• Our call. Maintain HOLD with TP of RM1.44 based on EBITDA/share estimate of 13.7sen and target P/EBITDA ratio of 10.5x.

Source: BIMB Securities Research - 21 Nov 2019