INVESTMENT HIGHLIGHTS

• 9MFY17 earnings is below expectation

• Plantation division PBT improved 49%yoy

• Management expect lower CPO price for July-September

• Earnings estimate reduced

• Maintain NEUTRAL with lower TP of RM5.00

9MFY17 earnings is below expectation. 9MFY17 CNI of RM825m is below consensus and our expectation as it only makes up 69% and 61% of consensus and our estimate, respectively. Reason for the negative deviation is due to lower PBT of RM285m (-57% yoy) in the resource based manufacturing (RBM) division. RBM sub-segments of oleochemical and refining have registered weaker sales volume and lower margin.

Plantation division PBT improved 49%yoy. Plantation division PBT increased 49% yoy to RM963m as the impact of higher CPO price (+27% to RM2753/MT) more than offset the lower FFB volume (-3% to 2.36m MT).

Management expect lower CPO price from July onwards. For CPO price outlook, management anticipate the prices to be supported at current levels during 4QFY17 (April to June) with lower prices expected in 1QFY18 (July to September) due to increased production. This is consistent with our expectation of lower CPO price in 2HCY2017 but to be supported at above RM2500 per MT.

Earnings estimate reduced. FY17 CNI is reduced by 14% to RM1.16b. As for FY18, CNI is cut by 15% to RM1.28b. We have assumed lower margin for RBM division for both FY17 and FY18.

Maintain NEUTRAL with lower TP of RM5.00: The Target Price is based on unchanged Forward PE of 24.7x (+0.5SD Valuation). We have also rollover to FY18 EPS. Maintain NEUTRAL as the high earnings from the plantation division has been largely priced in while we expect lower CPO price going forward.

Source: MIDF Research - 17 May 2017