• BKawan’s 1H17 net profit of RM360.9m was in-line with ours and consensus expectation.

• Revenue increased 35.9% yoy to RM11.234bn due to higher revenues from plantations, manufacturing and property segments.

• Adjusted for the RM485.7m surplus from sales of plantation land to associate in 1Q16, core PBT increased 32% yoy mainly on higher profit from plantation segment supported by higher palm product prices (CPO and PK) and increased in FFB production. Contribution from KLK is within our expectation.

• We maintain our BUY recommendation with TP of RM20.42 based on FY17’s PER multiple of 12x.

Earnings within expectation.

Overall, Batu Kawan’s result was largely within our forecast. The group’s core profit before tax (excluding a gain of RM488.7m from sale of plantation land to associate in FY16) increased 31.9% to RM951.5m (1H16: RM721m) mainly due to higher profit contribution from plantation and property segments. Manufacturing segments saw a lower profit of RM137m vs. previous year’s RM281m, as margins were narrower to 2.7% (1H16: 7.3%) due to increasing in cost of raw materials. Contribution from KLK is within our expectation (refer accompanying report on KLK).

Higher margin from plantation segment.

The plantation division recorded a higher profit of RM798.7m in 1H17 (1H16: RM407.8m) as margins increased to 13.7% from 9.5%. This was due to higher profits from estates operations, in-line with the higher average selling price of CPO and palm kernel realized.

Outlook is encouraging

We expect our target earnings for this year would be achievable, given our anticipated CPO price range between RM2,600/MT and RM3,200/MT in 1H2017 and the forward sales committed by the Group. We also believe that FFB production has recovered from the dry-weather impact and expect a better performance in the final quarter of financial year 2017.

Interim dividend of 15sen, no change in earnings forecast

An interim dividend of 15sen (1H16: 15sen) was declared and shall be paid on 10 August 2017. We maintain our earnings forecast for FY17 and FY18 respectively. Hence, maintain BUY with TP of RM20.42 based on FY17’s PER of 12x (its 2-yrs average PER).

Source: BIMB Securities Research - 23 May 2017