TSH’s 1H18 core net profit of RM24.4m (-47.2%) missed expectations, accounting for only 31.6-31.7% of consensus and our full-year forecasts. Lower than-expected realised average CPO price (RM2,299/tonne in 1H18 vs RM2,500/tonne we projected for 2018) was the key culprit to the deviation against our forecast. We cut our FY18 core net profit forecasts by 12.6% to RM67.3m, mainly to reflect the weaker-than-expected realised average CPO price in 1H18. Maintain SOP-derived TP of RM1.15, as our valuation base year has already been rolled forward to FY19 since last quarter’s reporting season. Maintain HOLD rating.

Missed expectations. 2Q18 core net profit of RM17.8m (QoQ: +172%; YoY: -27.1%) took 1H18 core net profit to RM24.4m (-47.2%). The results missed expectations, accounting for only 31.6-31.7% of consensus and our full-year forecasts. Lower-than expected realised average CPO price (RM2,299/tonne in 1H18 vs RM2,500/tonne we projected for 2018) was the key culprit to the deviation against our forecast.

QoQ. 2Q18 core net profit soared by 172% to RM17.8m mainly on the back of a 21.4% increase in FFB output, which more than offset slightly lower realised average CPO price.

YoY. 2Q18 core net profit declined by 27.1% to RM17.8m, as higher FFB production (+24.8%) was more than offset by a 14% decline in realised average CPO price, higher finance cost and depreciation charges (arising from the adoption of MFRS 141 since 1 Jan 2018).

YTD. 1H18 core net profit declined by 47.2% to RM24.4m, as higher FFB production (+23.4%) was more than offset by (i) the adoption of MFRS 141 (which has in turn resulted in higher depreciation charges), (ii) lower realised average CPO price (-18%), and (iii) higher finance costs. FFB production remained on an uptrend, increasing by 23.4% to 401k tonnes in 1H18, 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 core net profit forecasts by 12.6% to RM67.3m, mainly to reflect lower CPO price assumption (arising from weaker-than-expected realised average CPO price in 1H18).

Maintain HOLD, TP: RM1.15. Maintain SOP-derived TP of RM1.15, as our valuation base year has already been rolled forward to FY19 since last quarter’s reporting season.

Source: Hong Leong Investment Bank Research - 24 Aug 2018