Results

1HFY09/14 core net profit of RM591.5m (+28.6%) came in within expectations, accounted for 46.7-48.1% of our and consensus full-year net profit forecasts.

Deviations

None

Dividends

Declared interim single tier dividend of 15 sen (ex date: 21 Jul; payment date: 12 Aug 2014)

Highlights

YTD… 1HFY09/14 core net profit increased by 28.6% to RM591.5m mainly on the back of: (1) higher palm product prices and contribution from its own refineries and kernel crushing operations in Indonesia (which boosted core operating profit at the plantations division by 18.1% to RM544.9m); and (2) higher sales volume for the fatty acids and specialties products, favourable fatty alcohol business at the manufacturing division (which have collectively boosted core operating profit at the division by 38.1% to RM222.5m).

QoQ… Although revenue rose by 17.6% to RM2.9bn, 2QFY09/14 core net profit declined by 13% to RM268.6m mainly on the back of: (1) higher raw material prices and lower contribution from other manufacturing units, which dragged core operating profit at the manufacturing division by 10.8% to RM101.7m; and (2) lower property contribution.

Risks

• Weaker-than-expected FFB output;
• Escalating CPO production cost; and
• Weaker-than-expected recovery in edible oil demand and prices.

Forecasts

Maintained.

Rating

HOLD

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

Maintain SOP-derived TP of RM23.12 (see Figure 5) and HOLD recommendation on the stock.

Source: Hong Leong Investment Bank Research - 22 May 2014