Actual vs. Expectations The
9M12 core net profit* of RM56m was below expectations. It made up 58% of both
the consensus forecast of RM96m and our forecast of RM97m. The FFB yield was
lower than expected for both its Sabah and Kalimantan estates as the recovery
from the tree stress effect had been slower than expected.
Dividends No dividend was announced as expected.
Key Results Highlights YoY, the 9M12 core net profit declined 41%
YoY to RM56m. The 9M12 revenue meanwhile declined 10% to RM767m as the average
CPO price** was lower by 8% YoY to RM3095/mt while FFB volume also declined 5%
YoY to 283,909 mt. In addition, the group had applied a higher fertiliser
dosage to replenish nutrients for its stressed oil palm trees. Coupled with a
higher labour cost, we believe the operating cost may have increased by a
minimum 10%.
QoQ, the 3Q12 core net profit was down by 5% to RM19m as the
CPO price decline of 11% QoQ to RM2851/mt more than offset the higher FFB volume
of 102,927mt (+12% QoQ).
Outlook The long-term outlook remains positive
due to its young trees age profile of only 6.2 years old. Hence, the FFB growth
should be sustained at a double-digit rate for the next three years.
Change to Forecasts We have reduced our FY12-13E earnings
by 22%-8% to RM75m-RM132m after assuming lower FFB yields of
20.3mt/ha-22.2mt/ha. Note that FY12E FFB yield has been adjusted down by 10%
due to the slower than expected tree stress recovery. The FY13E FFB yield
reduction adjustment was less severe at 4% as we think that the higher
fertiliser application in FY12E should translate into a better FFB production
in FY13E.
Rating Maintain OUTPERFORM
Despite the lower adjusted Target Price (TP), the current
share price still offers a total return of 11%. Hence, we are retaining an
overall OUTPERFORM rating on the stock.
Valuation We have trimmed the TP to RM2.48 based on
an unchanged FY13E PER of 15.8x (+1SD above the 5-year mean, implying a premium
to its peers given the reasons mentioned above earlier) on the lower new FY13E
core EPS of 15.7 sen.
Risks A sustained drop in CPO prices.
Source: Kenanga
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