• Yee Lee’s 2QFY18 core earnings fell 15% yoy despite higher revenue reported. This was due to higher net opex coming from new oil palm plantation in Sabah.

• On qoq, core earnings surged 27% due to higher sales from its trading segment as well as improvement in its oil extraction rate (OER).

• Overall, 9MFY18 core earnings trailed our and consensus expectations at 63% and 68% respectively.

• Our earnings, call and TP are currently under review pending updates from management.

Earnings dragged by higher net opex

Yee Lee’s 3QFY18 core earnings fell 15% yoy to RM11m despite higher revenue reported. This was due to an increase of 2% in net opex coming from higher expenses for the new oil palm plantation in Sabah. Earnings were further impacted by lower contribution from its associate company, Spritzer Bhd; down by 15% to RM2.2m.

Supported by trading and manufacturing segment

On qoq basis, core earnings surged 27% due to higher sales from its trading segment ie. beverages, Campbells’, Sunplus and Kizz products. During 3QFY18, the company managed to improve its oil extraction rate (OER) and contributed higher PBT under manufacturing segment, up by 38% despite declining by 3% in segmental revenue. We believe the improved qoq sales was attributed to 0% GST implementation period in Jun-Aug 2018.

Mainly attributed by trading segment

Its 9MFY18 core earnings grew 5% to RM29m owing to better performance from trading segment (representing c.78% of total revenue) as well as its associate company, up by 6% and 3% respectively. Overall, its 9MFY18 trailed our and consensus expectation at 63% and 68% as we expect positive contribution from manufacturing segment.

Call and TP under review

Our earnings, TP and recommendation are currently under review pending updates from the management. Amidst our concern over its recurring losses on plantation segment, we believe the appointment of its joint venture entity, YTLC S/B by Shell Malaysia Trading S/B for provision of supply chain services for Shell convenience retail outlets in Peninsular Malaysia effective 1 Oct 2018 could help offset the downturn of Yee Lee’s business and boost its earnings in the future.

Source: BIMB Securities Research - 23 Nov 2018