| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.25 (+25.0%) |
| Last Traded | RM0.20 |
| Recommendation |
A recent investment bank research report indicates that a key company’s third-quarter fiscal year 2026 (3QFY26) financial performance surpassed expectations, primarily due to higher-than-anticipated palm oil prices. Despite a 5.1% year-on-year (YoY) increase in revenue, core net profit for 3QFY26 declined by 13.7% to RM42.7 million, largely impacted by weaker contributions from its milling business. For the cumulative nine months of FY26 (9MFY26), net profit saw a 4.1% YoY decrease to RM131.8 million, representing 84% of the bank’s full-year forecast and 80% of consensus estimates. Revenue for 9MFY26, however, rose 6.1% YoY to RM1.3 billion, driven by robust production and stronger average selling prices.
Performance Review
The plantation division emerged as a key strength, recording a 20.0% YoY profit increase to RM126.0 million for 9MFY26. This robust performance was attributed to a 10.3% rise in the average Fresh Fruit Bunch (FFB) selling price, reaching RM858 per tonne, alongside a 2.9% increase in FFB production to 248.3k tonnes.
In contrast, the palm oil milling division faced headwinds, with profit decreasing by 19.8% YoY to RM83.3 million in 9MFY26. This segment’s weaker performance was mainly due to compressed processing margins and elevated repair and maintenance expenses. While the average Crude Palm Oil (CPO) selling price increased by 5.0% to RM4,300 per tonne, a 1.8% YoY decline in sales volume partially offset this positive effect. The report also noted softer profit margins in the second half of FY26, influenced by lower oil extraction rates (OER), reduced CPO sales volume, and higher financing costs. The company declared a special single-tier dividend of 3 sen per share for the quarter, bringing the year-to-date dividend to 8 sen per share, a decrease from 10 sen per share a year ago.
Outlook and Forecast Revisions
The investment bank has revised its FY26 and FY27 earnings forecasts upwards by 6.2% and 6.6% respectively, reflecting the better-than-expected 3QFY26 results, strong FFB production growth, and higher finance costs. An initial FY28 earnings projection of RM155.1 million, a 3.5% YoY decline, has also been introduced.
Management has adjusted its FY26 FFB production growth estimate to 6-8%, a revision from earlier guidance of 5-10%, citing the improved age profile of young productive palms and ongoing replanting initiatives. The company intends to replant approximately 300-500 hectares in FY26 and anticipates a total processing throughput of 1.6 million tonnes of FFB.
Market Considerations and Recommendation
Looking ahead to 2026, the bank maintains a cautious stance on CPO prices. This caution stems from ample South American soybean supplies and the potential increase in soybean oil flows following the resumption of U.S.-China trade, which could constrain CPO demand. However, potential upside catalysts include biodiesel mandate-driven demand and weather-related supply disruptions. Reflecting the revised earnings and valuation, the investment bank has upgraded its recommendation for the stock from Sell to Hold, with a revised target price of RM2.47 per share (previously RM2.31 per share), based on a CY26 Price-to-Earnings Ratio (PER) of 15x.
