Results

FY13 reported net profit of RM98.2m came in within our expectation, at 104.4% of our forecast. Against consensus, the results came in stronger, accounted for 111.6% of consensus estimates.

Deviations

Largely in line.

Dividend

None

Highlights

YTD. FY13 net profit increased by 7.1% to RM98.2m as higher losses at the upstream plantation operations (arising from expenses incurred in plantation development works in Indonesia) was more than mitigated by: (1) Margin expansion at the palm oil mill engineering division; and (2) Higher progress billing at the special purpose vehicle division.

QoQ. Although revenue increasing by only 10.2% to RM150m, 4Q13 net profit jumped by 75.8% to RM38.7m mainly on the back of a strong surge in earnings recognition at the special purpose vehicle division, improved profitability at the palm oil mill engineering division, as well as CPO price recovery that boosted earnings contribution from its associates.

Moving forward, we remain positive on the company’s earnings prospects, underpinned by: (1) Still strong demand for palm oil mills; and (2) Sustained contribution from the special purpose vehicle division in the near to medium term.

Risks

Sharp decline in oil mill engineering contracts; and Steep rise in raw material prices, in particular, steel plates.

Forecasts

Maintained for now, pending update with management sometime this week.

Rating

HOLD

Positives – (1) Proven track record; (2) Favourable demand outlook for palm oil mills; and (3) Strong balance sheet. Negative – Low share liquidity.

Valuation

Maintain SOP-derived TP at RM3.75 (see Figure 4) as well as Hold recommendation for now, pending further update with management.

Source: Hong Leong Investment Bank Research - 26 Feb 2014