Results

• Beats our expectation. 1QFY15 net profit of RM20.1m came in above our expectation, accounting for 31.2% of our full-year forecast.

Deviation

• Better-than-expected margin at the Malaysian operations.

Highlights

• QoQ… Although revenue declining by 8% to RM232.1m (due to restructuring of certain operational facilities, which has in turn resulted in lower sales volume), 1QFY15 net profit increased by 39.7% to RM20.1m. This was boosted mainly by: (1) Lower glue and log costs; and (2) Improved operational efficiency and synergistic cost savings arising from its restructuring of certain operational facilities.

• YoY… 1QFY15 performance turned around with a net profit of RM20.1m (from a net loss of RM2.6m a year ago), thanks to lower production cost (in particularly, glue and log), higher selling prices and sales volume, as well as improved operational efficiency arising from restructuring of certain operational facilities in Malaysia.

Risks

• Escalating raw material and labour costs;
• Slower-than-expected demand for MDF;
• Fluctuating foreign currency movement (in particularly the US$); and
• Slower-than-expected turnaround at the saw mill and particleboard operations.

Forecasts

• Maintained for now (with upward biased), pending further update with management.

Rating

BUY

Positives

• (1) A beneficiary of strong US$ and low oil price; (2) Healthy balance sheet; and (3) Rubber plantation land bank value has yet to be reflected in current share price valuation.

Negatives

• Illiquid share trading volume.

Valuation

• Maintain TP of RM1.47 (based on 10x average 2015-2016 EPS of 14.7 sen) for now, pending further update with management. Maintain BUY recommendation.

Source: Hong Leong Investment Bank Research - 25 May 2015