Results

• 1HFY06/15 core net profit of RM645.8m (-7.6%) accounted for 46.5-48% of our and consensus full-year forecasts. We consider the results within our expectations as we expect stronger FFB output in 2HFY06/15 (as FFB output in 1H was dragged by weather conditions).

Deviations

• None.

Dividends

• Declared interim single-tier DPS of 4.5 sen (ex-date: 5 Mar 2015; payment date: 13 Mar 2015).

Highlights

• YTD. Core net profit in 1HFY06/15 declined by 7.6% to RM645.8m, due mainly to weaker margin from both the refinery and olechemical sub-segments, which has in turn resulted in a 1.7%-pts drop in the resource-based manufacturing division’s core operating profit margin in 1HFY06/15.

• QoQ… Core net profit in 2QFY06/15 improved significantly, by 82.3% to RM417m. This is due mainly to: (1) higher FFB output and lower operating costs at the plantation division (which have in turn lifted the division’s operating profit by 0.8% to RM265.1m); and (2) higher sale volume at the oleochemical sub-segment and margin expansion at the refinery and oleochemical sub-segments, which have in turn boosted the resource-based manufacturing division’s core operating profit margin by 3.4%-pts to 7.7%.

Risks- downside

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

Forecasts

• FY06/15-16 core net profit forecasts fine-tuned by 2.1-2.2% as we updated our parameters post release of audited FY06/14 figures.

Rating

HOLD

Positives

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

Negatives

• Pricey valuations.

Valuation

Post earnings forecast revision, SOP-derived TP is lowered by 1.2% to RM4.18. Maintain HOLD recommendation.

Source: Hong Leong Investment Bank Research - 16 Feb 2015