Results

• 1QFY15 core net profit of RM70.3m (yoy: -13.6%; qoq: - 51.7%) accounted for 19.2% and 23% of consensus and our full-year forecasts. We consider the results within our expectation as 1Q is historically weaker on the back of seasonally lower production.

Deviations

• Largely in line.

Dividend

• -

Highlights

• QoQ… Despite average CPO price was marginally higher, 1QFY15 core net profit declined by 51.7% to RM70.3m, and the weaker results were due mainly on: (1) Seasonally lower FFB production; (2) Lower land sale from property segment; and (3) The absence of biodiesel demand for discretionary blending.
• FFB production… Despite FFB output in Indonesia remained on the uptrend (thanks to a sizeable addition of newly-mature areas and young mature areas), FFB output declined by 6.4% yoy to 353k tonnes, mainly on the back of unfavourable weather condition, which impacted FFB production in its Sabah estates. While expecting FFB output to recover from 2Q, management guided down its FFB production growth for FY15 to 10% (from 10-12% previously) given the setback in 1Q, and highlighted that production growth could come below 10%, should El Nino turn out to be severe.
• Biodiesel sales… The downstream manufacturing segment recorded pretax loss of RM1m in 1QFY15, as its production utilization (of ~6,000 tonnes in 1Q) has yet to hit breakeven point. We believe performance of this segment will start improving from 2Q onwards, as take-up has picked up since Apr.
• The 2nd premium outlet, which will be located in Genting Highlands, will incur a total construction cost of RM200m. Upon completion (by 4Q-16), the premium outlet will house 150 designer brands and have a gross leasable area of 300k sq ft, which is comparable to JPO (upon the completion of its Phase 3 expansion).

Risks

• Economic uncertainties in world’s major economies that may hurt demand and prices of edible oil (including palm oil); and
• Escalating CPO production cost.

Forecasts

• Maintained.
• Rating HOLD

Positives

• (1) Increasing contribution from oil palm in Indonesia; (2) Strong balance sheet; and (3) Potentially, upside surprises to earnings from JPO

Negatives

• (1) Less upbeat overall demand outlook for property sector; and (2) low liquidity.
• Valuation

Maintain SOP-derived TP of RM10.50 (see Figure 4) and HOLD recommendation on the stock.

Source: Hong Leong Investment Bank Research - 28 May 2015