• Yee Lee’s 4QFY18 core earnings fell 28% yoy despite higher revenue reported. This was due to lower contribution from its associate company and realisation of tax expenses during the quarter.

• On qoq, core earnings fell 4% due to lower sales from its trading segment and decline in contribution from its associate company.

• Overall, FY18 core earnings trailed our and consensus’ expectations at 85% and 91% respectively. We cut FY19-21F by 13-16% as we lower our sales assumption on its trading and manufacturing businesses.

• HOLD at lower DCF-derived TP of RM2.00 (from RM2.39) as we turned more cautious over its long term prospect especially for trading segment due to higher-than-expected market competition.

Lower contribution from associate company

4QFY18 core earnings fell 28% yoy to RM10.1m despite higher revenue reported. This was due to lower contribution from its associate company, Spritzer Bhd; down by 87% to RM0.7m owing to lower gross profit margin arising from increase in raw materials and packaging costs. Earnings were further dragged by tax expenses incurred during the quarter compared to 4QFY17 where Yee Lee was eligible for tax credit of RM1.5m.

Lower contribution from trading segment

On qoq basis, core earnings fell 4% on the back of lower revenue and. contribution from Spritzer. During the quarter under review, trading segment revenue dropped 7% (c. represent 70-80% of total revenue) due to lower sales from beverages and cooking oils.

Turning more cautious

Overall, FY18 core earnings trailed our and consensus’ estimates at 85% and 91% respectively. We had initially anticipated that its trading and manufacturing business would perform better yoy, but the performance fell short of our expectation. As such, we pare down our FY19F/20F/21F earnings by 16%/12%/13%.

Dividend declared

A first and final DPS of 4sen was declared (FY17: 4.5sen), making up 89% of our DPS estimates. This implies total dividend payout of 20%.

HOLD at lower TP of RM2.00 (from RM2.39)

Maintain our HOLD call on the stock at lower DCF-derived TP of RM2.00 (from RM2.39) (WACC: 11%, g: 1%) after earnings adjustment and rolling over to FY19 figures. This implies FY19/20F PE of 8.7x/7.9x.

Source: BIMB Securities Research - 27 Feb 2019