Results

• Below expectations. 9MFY09/15 core net profit of RM650.3m (-20.2%) came in below expectations, accounted for only 70.1% and 69.7% of consensus and our full-year forecasts.

Deviations

• Weaker-than-expected average CPO price realized (RM2,155/mt vis-à-vis RM2,235/mt we assumed).

Dividend

• -

Highlights

• YTD… Although revenue increased by 16.4% to RM9.7bn, 9MFY09/15 core net profit declined by 20.2% to RM650.3m, and the weaker earnings were due mainly to: (1) Weaker plantation product prices and higher CPO production cost; and (2) Weaker performance at the fatty alcohol business arising from low petroleum prices and currency translation loss (arising from the unpegging of CHF against Euro), which have in turn resulted in a 30.4% decline in operating profit at the manufacturing segment (net of unrealized FV loss).

• QoQ… 3QFY09/15 core net profit improved by 56.1% to RM278.7m, thanks to: (1) Improved FFB production, lower CPO production cost, and higher CPO and PK sales volumes, which have resulted in operating profit at the plantation segment improving by 31.9% qoq (net of unrealized loss); and (2) Improved profitability at the manufacturing division.

Risks

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

Forecasts

• FY09/15 core net profit forecast lowered by 3.1% to RM904.3m, mainly to reflect the weaker-than-expected YTD average CPO selling price. Maintain FY09/16 core net profit forecast, pending a review of our average projected CPO price assumption.

Rating

HOLD

Negatives

• (1) Illiquid trading volume; and (2) Weak global economic outlook, coupled with the impending excess supply of CPO which will affect both demand and prices of CPO.

Positives

• (1) Rising FFB contribution from estates in Indonesia; and (2) Healthy balance sheet.

Valuation

• Maintain SOP-derived TP of RM20.45 (see Figure 5), as well as our HOLD recommendation for now, pending a review in our 2016 average projected CPO price assumption.

Source: Hong Leong Investment Bank Research - 20 Aug 2015