1QFY22 core net profit of RM454.1m (QoQ: +17.2%; YoY: 81.5%) beat expectations, accounting for 36.0-36.6% of our and consensus full-year estimates, due mainly to higher-than-expected realised palm product prices and manufacturing earnings. We raise our FY22-24 core net profit forecasts by 15.1%, 10.8% and 1.2%, respectively, mainly to reflect higher CPO price and margin assumption at manufacturing segment but partially offset by fertiliser cost assumptions. We maintain our BUY rating with a slightly lower TP of RM4.35 (vs. RM4.44 earlier), following the (i) upward revision in our core net profit forecasts, (ii) roll-forward of valuation base year (from FY22 to FY23), and (iii) recalibration of our earnings model (post release of latest annual report).

Above expectations. 1QFY22 core net profit of RM454.1m (QoQ: +17.2%; YoY: 81.5%) beat expectations, accounting for 36.0-36.6% of our and consensus full-year estimates, due mainly to higher-than-expected realised palm product prices and manufacturing earnings.

Exceptional items (EIs) in 1QFY22. Core net profit of RM454.1m in 1QFY22 was arrived after adjusting for (i) RM21.6m FV gain on biological assets, (ii) RM108.7m FV loss on derivative financial instruments, (iii) RM57.8m forex loss, (iv) RM5.6m FV gain on other investments, (v) RM25.7m FV loss on options, and (vi) RM0.3m impairment loss and write-down.

QoQ. 1QFY22 core net profit rose 16.8% to RM454.1m, helped mainly by higher contribution from plantation (arising from higher realised CPO price and FFB production) and manufacturing (arising from better contributions from oleochemical and refining sub-segments), but partly moderated by lower contribution from 30%-owned specialty fats associate (Loders).

YoY. 1QFY22 core net profit soared 80.6% to RM454.1m, boosted mainly by sharply higher realised palm product prices and better performance at manufacturing segment (arising from higher contribution from both oleochemical and refining sub-segments with improved margins). These were however partly moderated by a 1.9% decline in FFB output and lower contribution from Loders.

Outlook. Management remains optimistic on its FY22 performance, supported by high palm product prices (as it expects protracted labour shortage in Malaysia will continue to lend support to CPO price). Manufacturing segment, on the other hand, will remain profitable, as significantly higher feedstock and freight costs will be cushioned by robust demand (in line with global economy recovery) and management’s relentless effort to enhance cost efficiency and productivity, as well as better performance at specialty fats segment (Loders).

Forecast. We raise our FY22-24 core net profit forecasts by 15.1%, 10.8% and 1.2%, respectively, mainly to reflect higher CPO price and margin assumption at manufacturing segment but partially offset by higher fertiliser cost assumptions.

Maintain BUY, with slightly lower TP of RM4.35. We maintain our BUY rating with a slightly lower TP of RM4.35 (vs. RM4.44 earlier) based on 24x revised CY23 core EPS of 18.1 sen, following the (i) upward revision in our core net profit forecasts, (ii) roll forward of valuation base year (from FY22 to FY23), and (iii) recalibration of our earnings model (post release of latest annual report).

Source: Hong Leong Investment Bank Research - 25 Nov 2021