TSH’s 1Q18 core net profit of RM6.6m (qoq: -74.1%; yoy: -74.9%) came in below expectations, accounting for only 5.6-6.7% of consensus and our full-year forecasts. Key deviations against our forecast came mainly from higher-thanexpected production cost. We cut our FY18-20 core net profit forecasts by 14.9- 20.8%, largely to account for higher production cost. Maintain HOLD with a lower SOP-derived TP of RM1.15.

Missed expectations. 1Q18 core net profit of RM6.6m (qoq: -74.1%; yoy: -74.9%) came in below expectations, accounting for only 5.6-6.7% of consensus and our fullyear forecasts. Key deviations against our forecast came mainly from higher-thanexpected production cost.

QoQ. Despite FFB production rising by 4.7% to 181k tonnes, 1Q18 core net profit declined by 74.1% to RM6.6m, and this was due largely to (i) lower palm product prices, (ii) higher production cost arising from additional areas moving into mature bracket with low yield and the adoption of MFRS 141 (which has in turn resulted in higher depreciation charges), (iii) higher finance cost, and (iv) lower associate and JV earnings.

YoY. 1Q18 core net profit declined by 74.9% to RM6.6m mainly on the back of lower palm product prices and higher production cost arising from additional areas moving into mature bracket with low yield and the adoption of MFRS 141 (which has in turn resulted in higher depreciation charges). FFB production remained on an uptrend, increasing by 21.6% yoy to 181k tonnes in 1Q18, driven by FFB yield recovery in Sabah, and more areas moving into mature bracket in Indonesia. For the full-year, we maintain our FFB output growth of 18%, underpinned by FFB yield recovery and young age profile at its Indonesian operations.

Forecast. We cut our FY18-20 core net profit forecasts by 20.8%, 17.8% and 14.9% respectively, largely to account for higher production cost.

Maintain HOLD, TP: RM1.15. Post downward adjustment in our core net profit forecast, we cut our SOP-derived TP by 15.4% to RM1.15. Maintain HOLD recommendation.

Source: Hong Leong Investment Bank Research - 24 May 2018