• BKawan’s FY17 core net profit of RM663m came in-line with our expectation mainly on higher margin from plantation segment and share of result from associate of RM12.9m (FY16: loss of RM2.2m).

• Core PBT margin maintained at the same level as last year of 7.9% mainly due to higher margins from plantation and property development segments. Contribution from KLK is however, below our expectation.

• We maintain our FY18 and FY19 earnings forecast with HOLD recommendation and TP of RM20.39.

Earnings within expectation

Overall, Batu Kawan’s result was within our forecast. Plantation and property segment posted a higher profit of RM1,329m (+58%) and RM40.5m (+41%) respectively in FY17 as margins rose to 12.4% and 28.6% (FY16: 9.9% and 25.9%). Manufacturing segments saw a lower profit of RM271.6m vs. previous year’s RM430.4m, as margin was narrower at 2.6% (FY16: 5.3%) due to higher cost of raw materials, as well as stocks write-down of RM60.33m and a RM30.94m impairment of an under-performing oleochemical plant. Contribution from KLK is below our expectations (refer accompanying report on KLK).

Core PBT for 4Q17 rose 71% qoq (38% yoy)

On qoq basis the increase in PBT is attributable to higher profit from all segments. Plantation profit increased 26% to RM295.4m due to increase in FFB production and drop in cost of production. This was also aided by higher profit from manufacturing segment that recorded a profit of RM115.4m (3Q17: RM19.2m), which benefited from higher sales volume and improved margins.

A final single tier dividend of 45sen

The board has declared a dividend of 45sen (2016: 40sen) to be payable on 15 March 2018 (subject to shareholders approval in forthcoming AGM). This bring the total dividend for FY17 to 60sen (FY16: 50sen) per share or 3.4% dividend yield.

Unchanged earnings forecast

We maintain our FY18 and FY19 earnings forecast and HOLD recommendation with TP of RM20.39 based on FY18’s PER of 12x (2-year average PER).

Source: BIMB Securities Research - 23 Nov 2017