• Weaker-than-expected FFB production drags on earnings

• Young tree age profile moving into prime age will sustain long term earnings growth

• Strong balance sheet with RM3.30 net cash/share or 58% of share price

• Maintain BUY with lower DCF-derived TP of RM8.05

What’s New

Weaker-than-expected CPO production. Chin Teck Plantations (CTP) reported a weaker core net profit of RM3.2m for 2QFY20 after stripping off fair value gain on investment securities. The lower q-o-q and y-o-y core net profit was due to lower crude palm oil (CPO) production. 1HFY20 net profit was RM11.8m (-32.1% y-o-y). The results were below our expectations and only accounted for 29% of our FY20 forecast of RM40.2m.

Weaker FFB growth. 2QFY20 fresh fruit bunches (FFB) production came in at 34.3k MT (-41.4% y-o-y, -28.8% q-oq), while 1HFY20 FFB production decreased by 25.5% y-o-y. In line with FFB production trend, CPO production dropped 45.5% y-o-y and 37.9% q-o-q to 6.4k MT. Oil extraction rate (OER) stood at 19.36% in 2QFY20, compared to 20.06% in 1QFY20 and 19.9% in 2QFY19.

The lower FFB production was mainly due to the impact of dry weather which lagged from 2019. The drop in production was also in line with industry trend. CTP’s estates are located in Pahang, Negeri Sembilan and Kelantan. According to Malaysian Palm Oil Board (MPOB) data, Kelantan’s CPO production declined 31.8% y-o-y and 40.2% q-o-q, followed by Pahang’s CPO production which dropped 31.5% y-o-y and 38.4% q-o-q and Negeri Sembilan’s CPO Production which eased by 6.9% y-o-y and 34.2% q-o-q.

Source: Alliance Research - 22 Jun 2020