TSH’s 9M18 core net profit of RM42.1m (-47.5%) missed expectations, accounting for 61.8-62.5% of consensus and our full-year forecasts. Lowerthan-expected realised average CPO price was the key culprit to the deviation against our forecast. We cut our FY18 core net profit forecasts by 14.7% to RM57.4m, mainly to reflect lower CPO price assumption (arising from weakerthan-expected realised average CPO price in 9M18). Maintain SOP-derived TP of RM1.15, as our valuation base year has already been rolled forward to FY19 earlier on. Maintain HOLD rating.

Missed expectations. 3Q18 core net profit of RM17.7m (QoQ: -0.7%; YoY: -40.2%) took 9M18 core net profit to RM42.1m (-47.5%). The results missed expectations, accounting for 61.8-62.5% of consensus and our full-year forecasts. Lower-thanexpected realised average CPO price was the key culprit to the deviation against our forecast.

QoQ. 3Q18 core net profit declined marginally (by 0.7%) to RM17.7m as a 13.8% increase in FFB production was offset by a 10.8% decline in realised average CPO price (RM2,037/mt vs. RM2,283/mt in 2Q18).

YoY. 3Q18 core net profit declined by 40.2% to RM17.7m, as higher earnings contribution from cocoa division (arising from higher sales volume and better cocoa product prices) and higher FFB production were more than offset by lower realised average CPO price (RM2,037/mt vs. RM2,576/mt in 3Q17).

YTD. 9M18 core net profit forecast declined by 47.5% to RM42.1m, as improved performance from cocoa division (arising from higher sales volume and better cocoa product prices) and a 22.1% increase in FFB production were more than offset by lower realised average CPO price.

FFB production remained on an uptrend, increasing by 21.3% to 652k tonnes in 9M18, 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 14.7% to RM57.4m, mainly to reflect lower CPO price assumption (arising from weaker-than-expected realised average CPO price in 9M18).

Maintain HOLD, TP: RM1.15. Maintain SOP-derived TP of RM1.15, as our valuation base year has already been rolled forward to FY19 earlier on.

Source: Hong Leong Investment Bank Research - 30 Nov 2018