Results

• Below expectations. 1HFY09/15 core net profit of RM394.8m (-33.2%) came in below expectations, accounted for only 38.6% and 40.4% of consensus and our full-year forecasts.

Deviations

• Weaker-than-expected average CPO price realized (RM2,170/mt vis-à-vis RM2,300/mt we assumed); and

• Weaker-than-expected margin at the manufacturing segment.

Dividend

• Declared interim single-tier DPS of 15 sen (ex-date: 20 Jul 2015; payment date: 11 Aug 2015). For the full-year, we are projecting a total DPS of 65 sen, translating to a yield of 2.9%.

Highlights

• YTD… Although revenue increasing by 13.8% to RM6.2bn, 1HFY09/15 core net profit declined by 33.2% to RM394.8m and this was due mainly to: (1) Lower FFB production and plantation product prices, coupled with higher CPO production cost (which have altogether resulted in operating profit at the plantation division declining by 26.4% to RM401.2m); and (2) Weaker performance at the fatty alcohol business arising from low petroleum prices.

• QoQ… 2QFY09/15 core net profit declined by 17% to RM177.5m, as improved earnings at the manufacturing division was more than offset by weaker plantation division earnings (which in turn was due to higher CPO production cost and lower FFB production).

Risks

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

Forecasts

• FY09/15-16 core net profit forecasts lowered by 5.7% and 1.8% respectively, as we lowered our FY06/15 CPO selling price assumption (to reflect the actual average selling price achieved in 1H) and EBIT margin assumption at the manufacturing division.

Rating

HOLD

Negatives

• (1) Illiquid trading volume; and (2) Weak global 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 in Indonesia; and (2) Healthy balance sheet.

Valuation

• Post earnings revision, SOP-derived TP was tweaked lower (from RM20.33) to RM20.17 (see Figure 5). Maintain Hold recommendation on the stock.

Source: Hong Leong Investment Bank Research - 21 May 2015