Results

FY09/13 core net profit of RM894.2m (-13.2%) came in within expectations, accounted for 96.3-96.4% of consensus and our forecasts.

Deviations

None

Dividends

Recommended final NDPS of 35 sen, bringing total NDPS for the full-year to 50 sen (translating to a payout ratio of 58.9%), below 65 sen we projected.

Highlights

FY09/13 core net profit declined by 13.2% to RM894.2m mainly on the back of lower palm and rubber product prices, which more than offset: (1) Higher FFB output; (2) Higher palm product sales volume; (3) A sharp improvement in earnings contribution from the manufacturing segment (which in turn was driven by lower raw material cost and higher sales volume); (4) Strong earnings at the property segment (arising from commendable take ups for the property launches in Bandar Seri Coalfields); and (5) Higher finance costs.

QoQ. Despite revenue increasing by only 11% (to RM2.4bn), 4QFY09/13 core net profit surged by 39.3% to RM260.8m mainly on the back of: (1) Higher realized average prices and sales volume of palm products; (2) Lower production costs for palm and rubber products; and (3) Higher sales volume of fatty acids product.

Risks

(1) Earlier-than-expected recovery in the world’s major economies, resulting in better edible oil demand and prices; and (2) Weather uncertainties revisit, which would in turn result in edible oil supply distortion, hence boosting edible oil prices.

Forecasts 

Maintained, pending further update with management.

Rating

Sell

Negatives – (1) Illiquid trading volume; and (2) Weak global economic outlook, coupled with the impending excess supply of CPO will affect both demand and prices of CPO.

Positives – (1) Rising FFB contribution from estates in Indonesia; (2) Healthy balance sheet; and (3) Stable property earnings for the next two years.

Valuation

SOP-derived TP lowered marginally from RM18.17 to RM18.15, mainly to reflect its latest net debt position and the current market price of its listed associate. Maintain Sell recommendation on the stock.

Source: Hong Leong Investment Bank Research - 21 Nov 2013