Results

• 1QFY09/15 core net profit of RM214.2m (qoq: +17.2%; yoy: -30.6%) accounted for 19.6% and 21.9% of consensus and our full-year forecasts, respectively. We consider the results within our expectation, as we expect the remaining quarters of FY09/15 to come in stronger on the back of higher FFB output.

Deviations

• Largely in line.

Dividend

• None.

Highlights

• QoQ… 1QFY09/15 core net profit increased by 17.2% to RM214.2m mainly on the back of a turnaround at the manufacturing division and refineries and kernel crushing plants, which more than offset lower plantation product prices and output as well as higher CPO production cost.

• YoY… Although revenue rising by 24.9% to RM3.1bn, 1QFY09/15 core net profit declined by 30.6% to RM214.2m. The decline in earnings was due mainly to: (1) weaker plantation product and prices, coupled with higher CPO production cost, which dragged core operating profit by 16.1% to RM256.1m; and (2) negative margins from the fatty alcohol (which in turn was due to lower petroleum prices, which have in turn resulted in more competitive synthetic alcohol prices and destabilized fatty alcohol price) and surfactant businesses.

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) Weakglobal 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 inIndonesia; and (2) Healthy balance sheet.

Valuation

Maintain SOP-derived TP of RM20.33 (see Figure 4) as well as our HOLD recommendation on the stock.

Source: Hong Leong Investment Bank Research - 17 Feb 2015