Results

• FY14 core net profit of RM351.6m (+33.8%, also including substantial fair value gain on its Jalan Cochrane property, which amount could not be ascertained and contributed to its JV earnings) accounted for 138.1% and 134.1% of consensus and our forecasts, respectively. Excluding the abovementioned fair value gain, we believe the earnings would be in line with expectations, as the JV and associate earnings at the property segment jumped to RM80.9m from RM5.7m in the previous year.

Deviations

• Largely in line.

Dividend

• Single-tier DPS of 5 sen (ex and payment dates are 19 and 31 Mar, respectively), bringing total DPS to 26 sen (net yield of 5.6%), above our projected DPS of 18.7 sen for the year.

Highlights

• FY14 core net profit increased by 33.8% to RM351.6m and this was boosted mainly by: (1) Higher palm product prices; (2) Turnaround at the heavy industries division; (3) Higher contribution from the pharmaceutical division; and (4) Substantial fair value gain on its Jalan Cochrane property (which boosted associate and JV earnings at the property segment to RM80.9m from RM5.7m in the previous year).
• Excluding for the trading and industrial division (whereby performance turned into an operating loss of RM4m from an operating profit of RM15.9m in the previous quarter due to lower fuel prices and sales volume), all other divisions posted higher earnings, and boosted core net profit in 4QFY14 by more than 4-folds to RM205.9m. The strong earnings growth was driven mainly by substantial fair value gain on its Jalan Cochrane property, stronger contribution from Affin Holdings, turnaround at the heavy industries, and higher earnings contribution from the pharmaceutical 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, pending further update with management

Rating

BUY

Positives

• Still undervalued given the deep embeddedvalues 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, see Figure 5) and BUY recommendation.

Source: Hong Leong Investment Bank Research - 2 Mar 2015