• 3Q14 below on low CPO ASPs & higher tax.
• Cut  FY14E  EPS  by  6.5%  for  lower  ASPs,  higher  effective  tax rate.
• Maintain  BUY  &  SGD2.43  TP ,  on  15x  FY15E  EPS.  Catalysts from potential 27% EPS growth in FY15E.

Lower CPO ASPs, higher tax

3Q14  core  net  profit  of  USD43m  (-16%  YoY,  +65%  QoQ)  met  25%  of our  FY14E  forecast  and  24%  of  consensus.  We  were  going  for  30%. The  shortfall  came  from:  i)  a  higher  effective  tax  rate  of  32% (+14ppts  YoY,  -3ppts  QoQ)  due  to  under-provisioning    for  prior years;  and  ii)  low  CPO  ASPs  achieved  of  USD660/t  (-22%  YoY,  -6% QoQ). As a result, 9M14 EPS came in at 66% of our FY14E forecast. Its  downstream  division  also  failed  to  capitalise  on  cheaper feedstock.  EBITDA  margins  went  down  to  6.9%  (-1.1ppts  YoY,  -20ppts QoQ).

Priced in; BUY

Although  we  believe  4Q14  will  be  its  best  quarter ,  we  cut  FY14E EPS by 6.5%. This is for:  i) lower CPO ASP assumptions  of USD691/t from USD748; and ii) a higher effective tax rate of 26% from 25%. 3Q14 weakness should have been priced in. We continue to  like FR for  its  proven  management  and  long-term  value  proposition  from plantable  reserves  of  100k  ha  and  young  trees  of  eight  years  on average.  This  should  sustain  a  projected  11.8%  FFB  output  CAGR for  2013-16  and low costs  of production.  Our TP  remains based on 15x FY15E EPS, which is justified for the sector bellwether .

Source: Maybank Kim Eng Research - 14 Nov 2014