• 1Q19 core profit declined due to weaker CPO prices

• FFB yields remain decent albeit lower by 12% y-o-y

• Higher CPO price expected to boost earnings

• Maintain forecast and DCF-derived TP of RM9.05

What’s New

Within expectations. CTP posted 1QFY19 net profit of RM9.6m (-29% y-o-y, -17% q-o-q). Core earnings in the quarter stood at RM7.9m (-49% y-o-y, +17% q-o-q), after stripping off gains on disposal and forex. The fall in core earnings y-o-y was mainly attributable to lower CPO prices and weaker overall demand in the Malaysian palm oil market. We deem 1QFY19 core profit to be within our expectations although it only constituted 21.5% of our FY19 net profit forecast as we expect higher CPO prices in subsequent months.

Volume growth remains decent. 1QFY19 FFB production came in at 52.2k MT (-12% y-o-y, +27% q-o-q). 1Q19 FFB production was up y-o-y due to weaker overall yields from Malaysian plantations. However, FFB yields were 27% higher q-o-q, in line with the general production and miniresting period. CPO production slid 13% to 10.1k MT, consistent with the lower FFB production number. Extraction rate stood at 19.35% in 1QFY19, 0.93% lower vs 1QFY18, while the palm kernel extraction rate was 5.06%, 0.27% lower than 1QFY18.

Still undervalued with excess cash. CTP’s war chest is still impressive despite its cash and bank balances sliding to RM301.2m (-9.1% q-o-q) after spending RM21m on investment securities. CTP now has net cash per share of RM3.31, approximately 50% of the current share price of RM6.67. CTP is also trading at an EV/planted hectare of about USD6,000.

We remain positive on CTP in view of its increasing and commendable FFB yields as more trees move towards peak production. We maintain our DCF-based TP of RM9.05 as CTP still offers very apparent upside potential with its high cash per share and low implied EV/hectare. We expect its FFB production to peak in FY21 and FY22, and we think that yields will get better progressively within the next few years.

Source: Alliance Research - 30 Jan 2019