Results

9M13 core net profit of RM192.8m (-19.7%) accounted for 67.3-68.5% of our and consensus full-year forecasts. We consider the results within expectations, as we expect 4Q to come in stronger on the back of higher FFB output (which is similar to the previous year’s cropping pattern).

Deviations

Broadly in line.

Highlights

QoQ. Adjusted for RM29.6m (net of tax) unrealized exchange loss, 3Q13 core net profit increased by 45.7% to RM66m mainly on the back of better palm product prices, seasonally higher output and lower CPO production cost in Malaysia, which altogether more than offset lower output in Indonesia (which in turn was due to Ramadhan month and festive holidays) and lower property sales (as a result of delay in a few property launches).

YTD. 9M13 core net profit declined by 19.7% to RM192.8m, due mainly to lower palm product prices and higher CPO production cost in Malaysia (arising from the implementation of minimum wage and lower PK credit).

Conference call highlights: (1) 2013 FFB output growth of 10% on track and targeting high-teens in 2014; (2) 2013 CPO production cost in Malaysia guided slightly higher but expects both Malaysia and Indonesia to be lower in 2014; (3) Revenue contribution from biodiesel sales will remain for the next six months but we expect profit contribution to be minimal; (4) Remains confident on property sales; and (5) New planting on track this year.

Risks

• Earlier-than-expected recovery in edible oil demand and prices; and
• Weather uncertainties revisit, which would have a positive impact on edible oil prices.

Forecasts

Maintained. Our sensitivity analysis indicates that every RM100/tonne change in our CPO price assumption will result in 8.1% and 5% changes in our FY14 net profit forecast and TP respectively.

Rating

HOLD

Negatives – (1) Weak global economic outlook and impending excess supply of CPO will affect both demand and prices of CPO; and (2) Demanding valuation.

Positives – (1) Increasing contribution from oil palm in Indonesia; (2) Strong balance sheet and (3) Potentially, upside surprises to earnings from JPO.

Valuation

Maintain SOP-derived TP of RM10.31 (see Figure 5) as well as our Hold recommendation on the stock.

Source: Hong Leong Investment Bank Research- 28 Nov 2013