Kumpulan Fima (KFima)’s net profit for 2QFY18 declined 25.9% YoY to RM10.9m, while cumulative 1HFY18 net profit was RM15.8m (-40.6% YoY) which accounted for 46% of our full year forecasts and coming in broadly in line with estimates. 1QFY18 group revenue decreased 24.1% YoY attributed to mix of weaker manufacturing and plantation divisions dragging down growth in bulking and food divisions. We remain concerned over manufacturing division’s slowdown, though we are positive on KFima’s long-term growth prospects, strong cash position and attractive dividends. Our Neutral rating on the stock is maintained with unchanged TP of RM1.72 premised on our FY18F estimates.

• Manufacturing. 2QFY18 revenue declined 46.8% YoY to RM39.3m, while 2QFY18 PBT dropped to RM9.6m (-48.7% YoY), primarily due to decrease in sales volume of travel documents. We expect sales to remain at current low levels this year due to stiff competition and expiry of certain contracts for travelling documents. Nonetheless, we understand that the division will continue its efforts on product replenishment through looking to establish new strategic alliances for new products and solutions.

• Plantation division’s 2QFY18 revenue was down 21.5% YoY to RM32.9m, attributed to lower sales volume and selling price of both CPO and CPKO. Cumulative 1HFY18 revenue however remains higher YoY (+5.4%) due to stronger performance in the previous quarter. For 1HFY18, average CPO price was marginally higher at RM2,376/mt compared to 1HFY17’s RM2,358/mt) while CPO sales volume increased by 5.5% YoY. At PBT level, 2QFY18 and 1HFY18 PBT both grew at 14.5% and 53.7% YoY. PBT margin also improved to 20.7% in 1HFY18 (1HFY17: 14.2%). We continue looking forward to this division driving KFima’s long-term growth, from higher crop performance as new plantings move into productive age.

• Bulking revenue increased to RM12.4m for 2QFY18, up 14.9% YoY. 1HFY18 revenue, however was lower by 11% YoY due to weak 1QFY18 performance. Subsequently, 1HFY18 PBT also reduced by 20.0% YoY. In near term, the demand for storage is expected to increase slightly due to higher palm oil inventories level in Malaysia.

• Food division registered higher revenue for both 2QFY18 and 1HFY18 from higher export sales of tuna, however PBT reduced due to high operational costs and forex effects. Managing operational costs and focusing on efficiency remain as the key efforts to turnaround, as the division continue facing stiff competition from cheaper imported products and currency fluctuations.

Source: PublicInvest Research - 27 Nov 2017