Results

• 9MFY14 core net profit of RM145.7m (-43.7%) came in below expectations, accounted for only 42.4% and 52.8% of consensus and our full-year forecasts.

Deviations

• Weaker-than-expected performance at the property and manufacturing divisions, as well as higher-than-expected effective tax rate (36.4% vis -à-vis 21% we projected).

Dividend

• Single-tier dividend of 6 sen (Ex and payment dates are 16 and 31 Dec respectively ), bringing total dividend YTD to 21 sen (above its official dividend payout policy of 70%).

Highlights

3QFY14 core net profit declined by 25.6% qoq to RM33.7m, dragged by lower contributions from all divisions (with the exception of the pharmaceutical division), and higher effective tax rate of 41.7% (vis-à-vis 38.4% in the previous quarter).

9MFY14 core net profit declined by 43.7% to RM145.7m mainly on the back of lower contributions from the heavy industry (cost overruns on certain ship repair projects), property (absence of corporate lot sale and lower progress billings), and manufacturing & trading (absence of land sale) divisions. The weaker performance was further impacted by higher finance cost and higher effective tax rate.

Although we expect signing of the formal contract for the LCS project will accelerate billings of the heavy industry division and the property division to benefit from Jalan Cochrane contribution and potential sale of corporate lots, these will be offset by lower CPO price of the plantation division.

Risk

• Lower than expected revenue contributions from different divisions and/or margins falling short of expectations as well as relatively high gearing.

Forecasts

• Maintained for now (with downward bias), pending further update with management

Rating

BUY

Positives

• Still undervalued given the deep embedded values of the group, relatively high and quarterly net dividend yield and market yet to fully appreciate the hidden values .

Negatives

• Relatively high gearing and complicated group, quarterly fluctuation in earnings and weak near-term earnings outlook.

Valuation

• Maintain SOP-derived TP of RM5.54 (at 20% holding company discount) and BUY recommendation for now, pending a review in our earnings forecasts.

Source: Hong Leong Investment Bank Research - 28 Nov 2014