Results

1QFY13 core net profit of RM99.9m (-1.9% qoq and -12% yoy) was in line or accounted for 24.4% of HLIB and 24.3% consensus forecasts.

Deviations

Largely in line. Weaker plantation contribution offset by surprisingly strong heavy industry contribution (turnaround of BHIC and strong earnings of others in the division namely Boustead Naval Shipyard and MHS Aviation).

Dividend

Single-tier dividend of 7.5 sen (vs. 7.5 sen). Ex and payment dates are 13 and 28 Jun respectively. This is a payout of 77.6% or higher than the official dividend policy of 70%.

Highlights

Revenue contraction qoq due to heavy industry (which we believe is seasonal) but grew yoy supported by five out of its six main divisions, except plantation (due to lower production and CPO price).

1Q EBIT improvement mainly came from turnaround of the heavy industry division, property and jump in Pharmaniaga contributions (absence of impairment). This was partly offset by plantation (lower production and CPO price) and manufacturing & trading divisions. If not for the higher tax rate and MI, it would have shown an improvement in net profit.

1Q EBIT slightly lower yoy as improvement in heavy industry and property but largely offset by weaker contributions from plantation, Pharmaniaga and manufacturing & trading divisions. Again, the yoy contraction was further amplified by higher tax rate.

Risk

Lower than expected revenue contributions from different divisions and/or margins falling short of expectations as well as relatively high gearing and dilution from potential cash call.

Forecasts

FY13-14 earnings forecasts cut by 2.4-2.7% to reflect our recent cut in CPO assumption to RM2,500/Mt and strong contributions from non-BHIC heavy industry division.

Rating

BUY

• Positives – Still undervalued, P/E (low double-digit) and P/B not demanding, relatively high and quarterly net dividend yield, decent earnings growth and market yet to fully appreciate the hidden values.
• Negatives – Relatively high gearing and complicated group as well as quarterly fluctuation in earnings.

Valuation

• Target price fine-tuned to RM6.31 vs. RM6.33 (10% discount to estimated SOP of RM7.34) after incorporating higher target prices for Affin, BHIC and Pharmaniaga as well as lower plantation but higher heavy industry earnings and other updates.

Source: Hong Leong Investment Bank Research - 23 May 2013