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).
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.
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.
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
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