Results

• 1QFY15 core net profit of RM17.3m (qoq: -91.6%; yoy: - 74.1%) came in below our expectation, accounted for only 6.3% of our full-year forecast.

Deviations

• Weaker-than-expected performance at Affin Holdings (which was in turn hit by one-off provisioning at its commercial banking arm) and trading division.

Dividend

• Declared 1st single-tier interim DPS of 5 sen (entitlement date: 17 Jun 2015; payment date: 30 Jun 2015).

Highlights

• YoY… 1QFY15 core net profit dipped 74.1% to RM17.3m, mainly on the back of: (1) Weaker palm product prices and FFB production (which has resulted in the plantation division’s operating profit declining by 75.3%); and (2) Lower loans growth and NIM, coupled with the one-off provisioning, which dragged associate Affin’s earnings contribution .
• QoQ… 1QFY15 core net profit declined by 91.6% to RM17.3m mainly on the back of: (1) The absence of substantial fair value gain on its Jalan Cochrane property; (2) Declined earnings contribution from Affin Group (as reflected in lower associate and JV earnings); and (3) Lower contribution from BN Shipyard as a result of variations in the milestone achieved for LCS and other projects

Risk

• Lower than expected revenue contributions from different divisions and/or margins falling short of expectations as well as relatively high gearing.

Forecasts

• FY02/15-16 net profit forecasts cut by 23.2% and 9.9% respectively, largely to reflect: (1) A lower earnings assumption at Affin Group (see Affin’s report dated 21 May 2015); and (2) Lower earnings assumption at the trading division.

Rating

BUY

Positives

• Still undervalued given the deep embedded values 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

• SOP-derived TP cut by 11.4% (from RM5.54) to RM4.91 (at 20% holding company discount, see Figure 3) after reflecting lower earnings forecasts and latest market prices for Boustead Plant and BHIC. Maintain BUY recommendation.

Source: Hong Leong Investment Bank Research - 26 May 2015