HSP’s 1Q19 core net profit of RM4.5m (QoQ: -26.5%; YoY: -71.1%) came in below expectations, accounting for only 7.8-9.1% of our and consensus full year estimates. Key deviation against our forecast came mainly from lower than-expected palm product prices. We lower our FY19 core net profit forecast by -33.9% to RM37.7m, mainly to account for lower realised palm product selling prices in 1Q19. Maintain FY20-21 core net profit forecasts for now, as we will be reviewing our projected average CPO price assumptions post reporting season. Post earnings revision, we maintain our SELL rating with a lower TP of RM1.04 based on 22x revised FY19 EPS of 4.7 sen.

Below expectations. 1Q19 core net profit of RM4.5m (QoQ: -26.5%; YoY: -71.1%) came in below expectations, accounting for only 7.8-9.1% of our and consensus full year estimates. Key deviation against our forecast came mainly from lower-than expected palm product prices.

QoQ. 1Q19 core net profit declined by 26.5% to RM4.5m (from RM6.1m in previous quarter), as higher CPO sales volume and realised CPO selling price were offset by higher production cost (arising from seasonally lower FFB production) and lower realised PK selling price.

YoY. 1Q19 core net profit declined by 71.1% to RM4.1m (from RM15.5m last year) as higher palm oil sales volume and lower production cost were offset by sharply lower realised palm product prices.

Forecast. We lower our FY19 core net profit forecast by -33.9% to RM37.7m, mainly to account for lower realised palm product selling prices in 1Q19. Maintain FY20-21 core net profit forecasts for now, as we will be reviewing our projected average CPO price assumptions post reporting season. Our sensitivity analysis indicates that every RM100/mt change in our average CPO price assumptions will change our FY19-21 core net profit forecasts by circa 20%.

Maintain SELL with lower TP of RM1.04. Post earnings revision, we maintain our SELL rating with a lower TP of RM1.04 based on 22x revised FY19 EPS of 4.7 sen. At current share price of RM1.47, HSP is trading at FY19 P/E of 31.2x.

Source: Hong Leong Investment Bank Research - 30 May 2019