• Yee Lee’s 9MFY17 revenue grew 7.7% to RM824.5m from RM765.3m on better contribution from all business segments.

• The growth in revenue was however offset by higher operating cost in material cost which led to a 10.6% decline in EBITDA.

• Overall, 9MFY17 core earnings were below our expectation at only 67.9%.

• On qoq basis, the group’s core earnings surged 70.9% and 14.1% yoy to RM12.4m (2QFY17:RM7.3m) underpinned by better contribution from manufacturing and trading divisions, as well as Spritzer.

• We maintain our HOLD recommendation with TP RM2.39. Our target price is based on an average valuation methodology of 10x PER and DCF (WACC: 9.8%, Terminal growth rate: 3%).

Higher operating cost for 9MFY17

Yee Lee’s 9MFY17 revenue grew 7.7% to RM824.5m from RM765.3m on better contribution from all business divisions. However, the growth in revenue was offset by higher operating cost on material cost which led to a 10.6% decline in EBITDA. Subsequently, the group’s 9MFY17 core earnings fell 20.2% to RM26.0m from RM32.6m due to higher depreciation. Overall, 9MFY17 core earnings were below our expectation at only 67.9% of our FY17 forecast.

Strong qoq performance

On qoq basis, the group’s core earnings surged 70.9% and 14.1% yoy to RM12.4m (2QFY17:RM7.3m). The strong growth in core earnings were underpinned by better contribution from manufacturing and trading divisions, while associate’s contribution from Spritzer rose a robust 22% yoy. Revenue for manufacturing division grew 12.9% qoq and 8.8% yoy due to higher sales of bulk oils and packaging products i.e. aerosol can. Trading division grew 4.8% qoq and 18.6% yoy resulted from higher sales of cooling oils, Campbell’s product and all beverages products.

Outlook remains positive

In 3QFY17, the management has deployed new Flat Bed Die Cut Machine and advanced printing machine to reduce wastages and improve on its production efficiency for the group’s packaging division. The management also expects the performance for palm oil mills to improve given the FFB price deduction scheme.

Maintain HOLD with TP of RM2.39

We maintain our forecast and HOLD recommendation for Yee Lee with TP of RM2.39. Our target price is based on an average valuation methodology of 10x PER and DCF (WACC: 9.8%, Terminal growth rate: 3%).

Source: BIMB Securities Research - 30 Nov 2017