• Overview. 3Q19 PATAMI of RM32m was lower yoy attributable to the lower profit contribution from upstream segments and a loss of RM44m arising from impairment incurred for assets in Indonesia and loan to a JV. On quarterly basis, lower PATAMI was due to the absence of net tax income benefited from the disposal of subsidiary, PT Mas in 2Q19 as opposed to tax expenses of RM11m in 3Q19.

• Key highlights. 3Q19 saw improvement in both upstream and downstream segment on improved palm oil production and sugar operation as well as better margins and higher sales volume from differentiated business (Table 2). The discontinuing operations include the Group’s Liberian operations and JV in oleo-chemical and biomass following the plan to exit the respective operations.

• Against estimates: above. 9M19 profit was above ours estimates, although net earnings posted lower results of RM167m (-70% yoy) affected by lower production and ASP realized of CPO.

• Outlook. We believe our earnings forecast is achievable, however, management guided that current bullish PO prices have no significant impact to the Group’s results in FY19 as they have already committed to forward sales.

• Our call. Maintain HOLD with new TP of RM5.00 (RM4.83 previously) based on P/BV of average IOI and KLK of 2.5x and BV/share of RM2.00. Given the earnings results, we revised our earnings forecast for FY19 and FY20 higher to RM246m and RM613m respectively from RM132m and RM593m previously as we adjusted our cost of sales, operating expenses, effective tax rate and share of results from JV and associates assumptions.

Source: BIMB Securities Research - 2 Dec 2019