3Q20 core net profit of RM284m (QoQ: +115.2%; YoY: +317.6%) took 9M20 core net profit to RM594m (+786.6%). The results beat expectations, accounting or 86.5-116.6% of consensus and our full-year estimates, due mainly to higherthan-expected realised average CPO price. We raise FY20 core net profit forecast by 55.4% to RM791.4m, mainly to account for higher CPO prices YTD. We maintain our FY21-22 core net profit forecasts for now, pending a review in our average CPO price assumptions post results season. Maintain HOLD with unchanged SOP-derived TP of RM4.63.

Beat expectations. 3Q20 core net profit of RM284m (QoQ: +115.2%; YoY: +317.6%) took 9M20’s sum to RM594m (+786.6%). The results beat expectations, accounting or 86.5-116.6% of consensus and our full-year estimates, due mainly to higher-thanexpected realised average CPO price.

Exceptional items (EIs). Our core net net profit of RM284m in 3Q20 was arrived after adjusting for (i) RM36m net commodity loss, (ii) RM2m disposal gain, (iii) RM21m impairment, (iv) RM26m unrealised forex loss, (v) RM6m write off, and (vi) RM17m deferred tax asset recognised as tax loss arising from disposal of PT ISLM, (vii) RM24m fair value loss on PNG’s biological assets (i.e. sugarcane plantation).

QoQ. 3Q20 core net profit more than doubled to RM284m (from RM132m in previous quarter), boosted mainly by higher realised average CPO price (RM2,504/mt vs. RM2,361/mt in previous quarter) and stronger performance at downstream segment, but partly offset by a 3.1% decline in FFB output (arising from seasonal crop trend in PNG). During the quarter, PBIT at downstream segment almost tripled to RM71m (from RM24m in previous quarter), as weaker results from the European refineries (arising from weaker demand) were more than mitigated by gradual improvement in demand in Asia Pacific operations.

YoY. 3Q20 core net profit surged 3.2x to RM284m (from RM68m in previous quarter), due to significantly higher palm product prices and marginal improvement in downstream performance, which altogether more than mitigated lower FFB output (- 3.1%) and OER.

YTD. 9M20 core net profit surged 7.9x to RM594m, as a 6.3% decline in FFB output and weaker downstream performance were more than mitigated by higher palm product prices, higher contribution from sugar operation in PNG (as it recovered from pest and disease issue in 2019) and lower CPO production cost (as certain activities were not carried out due to movement restriction arising from Covid-19 pandemic).

FFB output guidance. Management guided down its FFB output growth guidance for FY20 (to -3-4% from flattish earlier) due mainly to labour shortfall in Malaysia operations and change in cropping pattern in Indonesia. Moving into FY21, we sense that management is more positive on its FFB output, as it does not expect the lagged drought impact (in FY19) to protract into FY21.

Forecast. We raise our FY20 core net profit forecast by 55.4% to RM791.4m, mainly to account for higher CPO prices YTD. We maintain our FY21-22 core net profit forecasts for now, pending a review in our average CPO price assumptions post results season. Based on our estimates, every RM100/mt change in our average CPO price assumptions will results in RM250m change in our PBIT forecasts.

Maintain HOLD; TP: RM4.63. We maintain our SOP-derived TP of RM4.63 (see Figure #2) and HOLD rating on the stock. There is an upside bias to our TP, pending a post results season review on our average CPO price assumption.

Source: Hong Leong Investment Bank Research - 24 Nov 2020