• 3QFY18 profits nearly tripled with bumper disposal gains of RM17.5m

• FFB output expanded 12% y-o-y on stronger yields; 9M18 production up 32% y-o-y

• Interim and special dividends announced, amounting to 20 sen payout with ex-date of 13 Aug

• Maintain BUY, TP tweaked to RM9.25

What’s New

Booster from second portion of securities sale. CTP posted a 3QFY18 net profit of RM24.2m (+275% y-o-y, +7% q-o-q), lifted largely by RM17.45m of disposal gains from its sale of investment securities. Recall that this is the second portion of disposal gains, as RM14.1m was recorded in 2QFY18. Removing that and unrealised forex impact, core earnings in the quarter came to RM6.2m (-15% y-o-y, -36% q-o-q), bringing 9M18 core profit to RM31.3m (-1% y-o-y) – within expectations at 76% of our full-year forecast.

Volume growth still firm. 3QFY18 FFB production was 46.5k MT (+12% y-o-y, -19% q-o-q). Despite easing from 1H18’s pace of +42% y-o-y, 3Q18 yields still showed improvements with a 13% y-o-y increase. CPO production correspondingly rose 11.5% y-o-y to 9.27k MT. 9MFY18 total FFB output thus came to163.5k MT (+32% y-o-y), and CPO output was 15% higher at 31.8k MT.

Better operating profits, but larger associate drag. The higher volumes helped offset weaker CPO ASP in 3QFY18, as MPOB spot prices averaged 15% lower y-o-y in the quarter at RM2,414/MT. CTP still managed to post 14.7% revenue growth to RM39.6m; and core EBIT expansion of 52% y-o-y to RM14.4m in the quarter. However, losses from associates and JV grew to RM5.7m (vs an aggregated gain of RM0.1m in 3QFY17), resulting in the core earnings decline.

Bumper dividend, though slightly lower than expected. CTP announced its second interim and special dividend of 10 sen each, equating to a 20 sen payout with ex-date of 13 Aug. Assuming no further dividend, this would bring its FY18 payout to 30 sen, coming below our earlier 37.9 sen forecast; and implies a 40% payout of full-year profit vs our 50% assumption. This also implies a larger build-up of the group’s net cash position.

Still cheaply valued plantation player. We make no changes to our forecast at this juncture, but change our FY18F DPU assumption to 30 sen (from 37.9 sen before). Thus, our DCF-based TP inches up to RM9.25. We continue to view CTP as an undervalued upstream player relative to its production capabilities, especially if it can maintain FFB yields above the 24 MT p.a. mark going forward. Maintain BUY.

Source: Alliance Research - 31 Jul 2018