1H18 core net loss of RM72m missed expectations, as HLIB and market were projecting a full-year core net profit of RM98.1m and RM141.3m. Key variances against our forecast include (i) lower-than-expected FFB production, (ii) higher than-expected CPO production cost, and (iii) weaker-than-expected JV and associate performances. We revised our FY18 forecast to a core net loss of RM10.3m (from a core net profit of RM98.1m), and lower our FY19-20 core net profit forecasts by 23.4-31.6%, largely to account for lower FFB production assumption, higher CPO production cost, and lower JV and associate contribution assumptions. Post core net profit forecast adjustments, we maintain our HOLD rating with lower SOP-derived TP of RM1.53.

Another disappointing quarter. 1H18 core net loss of RM72m (vs. core net loss of RM19.7m in 1H17) missed expectations, as HLIB and market were projecting full-year net profit forecasts of RM98.1m and RM141.3m respectively. Key variances against our forecast include (i) lower-than-expected FFB production, (ii) higher-than-expected CPO production cost, and (iii) weaker-than-expected JV and associate performances.

QoQ. 2Q18 core net loss widened to RM61.1m (from RM10.8m in 1Q18) mainly on the back of higher CPO production cost, lower CPO price realised, losses at JV, and higher LLA cash payment, which altogether more than offset lower net finance cost.

YoY. 2Q18 core net loss widened to RM61.1m (from RM23.9m in 2Q17) mainly on the back of lower FFB production and palm product prices, higher CPO production cost, higher LLA cash payment, and losses at JV.

YTD. 1H18 core net loss widened to RM72m (from RM19.7m in 1H17) mainly on the back of lower palm product prices, higher CPO production cost, higher net finance cost, and weaker JV and associate performances.

Forecast. We revised our FY18 forecast to a core net loss of RM10.3m (from a core net profit of RM98.1m), and lower our FY19-20 core net profit forecasts by 23.4- 31.6%, largely to account for lower FFB production assumption, higher CPO production cost, and lower JV and associate contribution assumptions.

Maintain HOLD with lower SOP-derived TP of RM1.53. We maintain our HOLD recommendation with a lower SOP-derived TP of RM1.53 (from RM1.82 previously) to reflect the downward revision in our core net profit forecasts.

Source: Hong Leong Investment Bank Research - 29 Aug 2018