TH Plantation (THP) 1Q23’s PATAMI of RM11.5mn (QoQ: -50%, YoY: -47%) was broadly in line with our and consensus estimates accounting for 18% and 26% of full year forecast respectively. After adjusted for fair value (FV) changes in biological assets and unrealised gain or loss in foreign exchange, core profit was actually below our expectations. This was in line with the drop in revenue (-33% QoQ, -26% YoY) to RM146mn, no thanks to lower average selling price (ASP) realised of palm products during the period. We revised lower our FY23 earnings forecast to RM25.6mn against RM65.5mn previously, as we revisit our assumptions on production, average selling price realise of palm products and costs to better reflect of our current and future expectations. We have a non-Rated recommendation on the stock.

• Within expectations. THP’s 1QFY23 headline PATAMI of RM11.5mn was within our and consensus’ expectations.

• QoQ. 1QFY23 revenue dropped to RM146.4mn (-33% QoQ), whilst earnings slipped by 50% QoQ to RM11.5mn, due to lower sales volume for CPO, PK and FFB that declined by 35.5%, 35.4% and 10.0% respectively to 30,979MT, 7,867MT and 16,160MT; on-top of a lower FFB and PK selling price of RM1,987/MT and RM759/MT respectively. Higher effective rate of 29.4% against 20.6% in 4Q22 also added to the lower PATAMI.

• YoY/ YTD. After adjusting for fair value changes in biological assets and unrealised gain or loss in foreign exchange, THP’s recorded a 72% YoY contraction in core PBT to RM8.0mn in 1Q23. This was in line with revenue that decreased by 26% YoY no thanks to lower ASP realised of CPO, PK and FFB. (Table 2).

• Outlook. We reiterate our view that THP may face with potential risks that could impact its earnings this year, among others, if there is 1) a huge pullback in palm product price, and 2) an increase in operational costs.

• Forecast. Given challenging business outlook amid an increase in operational costs and moderation in palm products price, we revised lower our earnings forecast to RM26mn for FY23, and introduce our FY24 earnings forecast of RM28.5mn.

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

Source: BIMB Securities Research - 30 May 2023