• BAK’s 1H18 core profit declined 64% to RM115m as revenue fell 18% to RM8.3bn. Margin was squeezed by lower ASP of palm products and negative contribution from share of results of joint ventures.

• Lower profit contribution from manufacturing segment impacted by lower selling prices coupled with higher energy costs.

• Overall, net profit came in below expectation making up only 37% of our full year forecast. Contribution from KLK is also below our expectation.

• We revised our earnings forecast lower for FY19 and FY20 with new TP of RM16.33 (RM17.28 previously). Maintain HOLD.

Dragged by lower ASP.

Overall, Batu Kawan’s earnings were below our forecast. Plantation segment saw a lower profit of RM232.5m vs previous year’s RM491m, as margins were narrower at 7.0% (1H18: 10.8%) due to lower ASP realised for CPO and PK. The lower results were also caused by manufacturing segment where margin dropped to 5.2% from 5.9% in 1H18 on account of lower selling prices and higher energy costs, coupled with lower contribution from Europe operations, and lower unrealised gain of RM16.2m (vs RM46.7m gain in 1H18) from FV changes on outstanding derivatives contracts. Contribution from KLK is also below our expectation (refer accompanying report on KLK). Investment holdings profit increased more than 100% yoy to RM85m mainly contributed by 1) RM24.2m surplus arising from government acquisition of land, 2) forex gain of RM35m vs. loss of RM268m in 1H18, and 3) farming sector profit doubling to RM48m.

PBT fell 40% qoq

On qoq basis, the decline in PBT is attributable to lower profit from all segments. Plantation’s profit shrunk 19% to RM104m due to lower ASP of CPO and PK while manufacturing reported lower profit of RM121m (1Q19: RM125m) mainly due to the decline in selling prices as well as recognition of unrealised loss of RM4.9m (1Q19: RM21.1m gain) from FV changes on outstanding derivative contracts.

Declared an interim dividend of 15sen/share

The board has declared an interim single tier dividend of 15sen (FY18: 15sen) for FY19. At current market price, this would translate into DY of 0.9%.

Revised forecast, TP lowered to RM16.33

We revised lower our FY19 and FY20 earnings forecast to RM428m (- 25%) and RM539m (-17%) with new TP of RM16.33 (RM17.28 previously) based on FY20’s EPS and PER of 12x (2-year average PER).

Source: BIMB Securities Research - 16 May 2019