HSP’s 9M18 net profit of RM23m (-74.1%) accounted for only 31.4-38.8% of our and consensus full-year forecasts. While we expect 4Q to come in stronger (as 3Q18 performance was partly dragged by lower CPO sales volume arising from timing of deliveries), the results still came in below expectations, on the back of weaker-than-expected FFB production and palm product prices. We cut FY18-20 net profit forecasts by 10.5-28.2%, largely to account for lower FFB production assumption and lower realised CPO price YTD. Maintain HOLD rating w ith a lower TP of RM1.82 (vs. RM2.03 previously) based on 18.5x revised FY19 EPS of 9.8 sen.

Below expectations. 3Q18 net profit of RM3.6m (QoQ: -8.4%; YoY: -86.1%) took 9M18 net profit to RM23.0m (-74.1%), accounting for only 31.4-38.8% of our and consensus full-year forecasts. While we expect 4Q to come in stronger (as 3Q18 performance was partly dragged by lower CPO sales volume arising from timing of deliveries), the results still came in below expectations, on the back of weaker-than expected FFB production and palm product prices.

QoQ. Net profit shrunk by 8.4% to RM3.6m, as lower sales volume for both CPO and PK (due to timing of deliveries) and lower realised average CPO price more than negated marginally higher PK price and tax benefit arising from investment tax allowance on its biogas plant.

YoY. 3Q18 net profit plunged 86.1% to RM3.6m mainly on the back of lower palm product prices and lower sales volume for both CPO and PK (due to timing of deliveries), which more than negated tax benefit arising from investment tax allowance on its biogas plant.

YTD. 9M18 net profit plunged 74.1% to RM23m mainly on the back of lower palm product prices and lower sales volume for both CPO and PK (due to timing of deliveries).

FFB production. 9M18 FFB production declined by 4.6% to 440k tonnes, due mainly to lingering effect from El Nino event (which started in late-2014 and dissipated in early-2016).

Forecast. We cut FY18-20 net profit forecasts by 10.5-28.2%, largely to account for lower FFB production assumption and lower realised CPO price YTD.

Maintain HOLD with lower TP of RM1.82. Post downward revision in our earnings forecasts, our TP on HSP is lowered by 10.3% to RM1.82 based on 18.5x revised FY19 EPS of 9.8 sen. Maintain HOLD rating.

Source: Hong Leong Investment Bank Research - 22 Nov 2018