Results

1QFY06/14 core net profit of RM431.4m (yoy: +2.3%; qoq: +42.3%) accounted for 21.7-23.4% of our and consensus full-year forecast respectively. We consider the results within expectations as we expect higher CPO price (which has gone up by 10% from the average spot price of RM2,343/mt in 1QFY06/14) and historically higher property earnings in 4Q to boost earnings in the remaining quarters.

Deviations

None

Dividends

None

Highlights

YoY. Despite realized CPO price declined by 20.2% (see Figure 2), 1QFY06/14 core net profit increased by 2.3% to RM431.4 mainly on the back of higher sales volume, coupled with margin expansion at the refinery and oleochemical sub-segments which resulted in a two-fold increase in resource-based manufacturing operating profit (which jumped to RM208.7m from RM66.4m a year ago).

QoQ. 1QFY06/14 core net profit rose by 42.3% from RM303.2m to RM431.4m, thanks to a 25.6% increase in FFB output (which in turn is due to seasonally higher output), coupled with continued improvement at the resource-based manufacturing segment (arising from higher sales volume at the olechemicals and refinery subsegments and margin expansion at the specialty fats subsegment).

Risks - downside

Recovery in global vegetable oil production may result in a sharp plunge in vegetable oil prices; and

Economic uncertainties in world’s major economies that may hurt demand and prices of edible oil (including palm oil).

Forecasts

Maintained.

Rating

HOLD

Positives –

• Value accretive demerger; and
• Strong balance sheet.

Negatives –

• Weak near-term upstream plantation sector outlook.

Valuation 

Maintain SOP-derived TP of RM5.16 (see Figure 4). Maintain Hold recommendation on the stock.

Source: Hong Leong Investment Bank Research - 19 Nov 2013