Results

FY06/14 core net profit of RM1.26bn (+13.3%) came in below our expectation, accounted for only 86.1% of our forecast.

Deviations

Weaker-than-expected average selling price realized for CPO (RM2,509/tonne vs. RM2,700/tonne we assumed).

Highlights

YTD… FY06/12 core net profit from continuing operations increased by 13.3% to RM1.26bn mainly on the back of: (1) Higher palm product prices and production; and (2) Higher sales volume and margin expansion from oleochemicals and specialty oils and fats sub-segments.

QoQ… 4QFY06/14 core net profit declined by 7.5% to RM269.4m mainly on margin squeeze at the refinery subsegment, which more than offset better performance at the plantations segment (arising from better PK selling price and higher FFB production).

Risks

Downside

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

Forecasts

We are taking this opportunity to cut our FY06/15-17 net profit forecasts by 9.5-13.2%, largely to account for lower CPO price assumption.

Rating

HOLD

Positives – (1) Improved demand outlook for CPO; (2) Decent balance sheet; and (3) Strong cash flow generation ability.

Negatives – Pricey valuations.

Valuation

SOP-derived TP cut by 10.2% to RM4.39, largely to reflect: (1) the downward revision in our net profit forecasts; and (2) the roll-forward of our valuation base year from CY2015 to CY2016. Maintain Hold recommendation.

Source:Hong Leong Investment Bank Research - 21 Aug 2014