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Bimb Research Highlights

Author: kltrader   |   Latest post: Wed, 10 Jul 2019, 4:47 PM

 

Batu Kawan - Dragged by lower ASP of palm products

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  • BAK’s 1Q19 core profit declined 82% yoy to RM38.7m as revenue fell 21% to RM4.22bn. Margin was squeezed by lower ASP of palm products from both plantation and manufacturing segments aided by higher energy costs in chemical division.
  • Its “others” segment achieved higher profit with the recognition of surplus from government acquisition of land amounting RM22.5m vs. RM13.6m in 1Q18.
  • Overall, core PATAMI came in below our forecasts. Contribution from KLK is also below our expectation.
  • We maintain our FY19 and FY20 earnings forecast with unchanged TP of RM17.28. Maintain HOLD.

Results below expectation.

Overall, Batu Kawan’s results were below our forecast. Plantation segment saw a lower profit of RM128.4m vs previous year’s RM313.4m, as margins were narrower at 7.5% (1Q18: 12.2%) due to lower ASP realised for CPO and PK, negating the improvement in FFB production. Profit was also impacted by lower profit from manufacturing segment. Oleo-chemical division profit decreased 31% yoy to RM94.5m as profit from China and Europe operations declined due to lower margin offsetting the higher margin from Malaysia’s operations. Contribution from KLK is also below our expectation (refer accompanying report on KLK). Accordingly, manufacturing margin shrunk to 5.4% from 6.6% in 1Q18 on account of lower selling price and higher costs (Table 2). Property development registered higher profit of RM11.1m (1Q18: RM1.7m) on account of 123% increase in revenue to RM39.8m.

Mitigate by manufacturing segment

On qoq basis, the increase in PBT is attributable to higher profit from manufacturing segment, forex gain of RM37.98m (4Q18: loss of RM15.86m) and RM22.5m surplus (4Q18: Nil) from government acquisition of plantation land. Manufacturing profit surged 86% to RM125.2m (4Q18: RM67.4m) on account of higher margins from Malaysia’s operations which also aided by RM21m unrealised gain (4Q18: loss RM9.39m) from FV changes on derivatives contracts. Meanwhile, plantation’s profit shrunk 27% to RM128.4m mainly due to lower ASP of CPO and PK, and increase in CPO production costs.

Maintain HOLD with TP of RM17.28

We maintain our FY19 and FY20 earnings forecast of RM577m and RM641m respectively with unchanged TP of RM17.28 based on FY19’s EPS and PER of 12x (2-year average PER).

Source: BIMB Securities Research - 18 Feb 2019

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