• Overview. Adjusted for fair value change on biological assets of RM11.2m vs. RM14.9m in 1Q21, THP recorded a core PBT of RM28.6m in 1Q22 against RM12.5m in 1Q21. This was due to higher revenue achieved on the back of higher ASP realised of FFB, CPO and PK as well as higher sales volume of CPO and PK, despite the higher cost of sales and expenses amounting to RM149m (+46%) and finance cost of RM20.0m (+21%). On a quarterly basis, the higher ASP realised of CPO, PK and FFB during the period are insufficient to compensate for the lower production and sales volume of CPO, PK and FFB and hence, a lower qoq performance -Table 2. The fair value changes in biological assets, forestry and unrealised forex gain/loss were the key variances in our core earnings.

• Key highlights. A 6% drop in FFB production to 130,372 MT vs. 139,221 MT in the same period last year was mainly due to lower production from Sarawak estates as a result of a shortage of harvesters. Conversely, Peninsular estates recorded an increase of 8% in FFB to 3,070 MT while Sabah by 43% to 7,398 MT, thanks to additional contract harvester hired in Peninsular and increased in the weight of FFB from the young matured field (age 6-8yrs) for Sabah.

• Against estimates: Inline. The result was within our estimates.

• Outlook. As THP earnings are highly correlated to ASP of palm products and production, we believe earnings would be sustainable in this financial year. We continue to hold the view that CPO price may sustain above RM5,000/MT in the short-to-medium term before moderating in the latter part of 2Q22. Strong market fundamentals, higher crude oil prices, geopolitical tension between Russia and Ukraine, and Indonesia’s export policy and tax structure are among the drivers to support the commodity in the near term.

• Our call. We have a non-Rated recommendation on the stock.

Source: BIMB Securities Research - 31 May 2022