• Overview. After adjusting for fair value changes in biological assets and unrealised forex gain/(loss), THPlantations(THP)recorded a 22%  YoY and 12% QoQ contraction in core PBT to RM35.9mn in 3Q22. Its form was also hurt by higher operating costs from higher cess  payment and on-going consolidation exercises to improve  operational efficiency and quality of assets. This was also due to a  lower-than-expected FFB and CPO production, a drop in CPO sales  volume and higher cost of sales amounting to RM164.4mn (+24%), despite registering a higher average selling price (ASP) realised of  CPO that jumped by 10.0% YoY to RM3,997/MT (table 2). As for  9M22, although top line jumped by 29% to RM661.9mn, PBT was hit  by higher operational cost on the back of lower production and sales  volumes of CPO and PK, despite able to book a higher ASP realised of  FFB, CPO and PK (Table 2).

• Key highlights. A 6% YoY drop in FFB production to 487.4k MT for  9M22 versus 519.1k MT in the same period last year was mainly due  to consolidation exercise and shortage of skill harvesters, on top of  adverse weather condition in 1Q22.

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

• Outlook. We are cautious on THP outlook for next year owing to 1) a  projected increase in operational costs due to consolidation exercise and transformation plan, and 2) a likely pullback in CPO prices which  could drag earnings given THP earnings are highly correlated to ASP  of palm products and production. Nonetheless, we hold the view that  CPO price may sustain to trade above RM3,000/MT and to average  at RM3,500/MT next year.

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

Source: BIMB Securities Research - 10 Nov 2022