Results

• 9MFY15 core net profit of RM56.6m (-60.4%) came in below our expectation, accounted for only 50% of our full-year forecast.

Deviations

• Weaker-than-expected performance at Affin Holdings and trading & industrial division.
• Higher-than-expected effective tax rate.

Dividend

• Declared 3rd single-tier interim DPS of 6 sen, bringing YTD DPS to 16 sen. This translates into total net dividend yield of 3.9%.

Highlights

• Better qoq net profit in 3QFY15 mainly supported by the turnaround in heavy industries division. Heavy industries division reported operating profit of RM14.8m, turnaround from RM19.9m losses in 2Q15 (due to the provision of foreseeable loss for the restoration of KD PERANTAU). However, it was partially offset by lower contribution from trading & industrial (stockholding loss of RM12.5m and retrenchment cost) and plantation divisions (lower palm product prices) as well as lower contribution from Affin Holdings despite better contribution from property and pharmaceutical divisions.
• Despite improvement in property and pharmaceutical divisions, 9MFY15 core net profit declined by 60.4% yoy to RM56.6m mainly due to weaker contribution from: 1) plantation division (-60.1% yoy) with lower palm product selling prices and flat production; 2) heavy industries (-73.5% yoy) on losses incurred by Boustead Naval Shipyard; 3) trading & industrial (-38.4% yoy) on retrenchment costs of non-core operation; and 4) Affin Holdings (arising from higher provisions as reflected in lower associate and JV earnings).

Risk

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

Forecasts

• FY15-17 core net profit forecasts cut by 8-22%, largely to account for higher effect tax rate, lower contribution from trading & industrial division and higher than expected minority interest.

Rating

HOLD

Positives

• Relatively high and quarterly net dividend yield.

Negatives

• Relatively high gearing and complicated group, quarterly fluctuation in earnings and weak near-term earnings outlook.

Valuation

• Maintain HOLD recommendation with unchanged Target Price of RM4.07 based on SOP.

Source: Hong Leong Investment Bank Research - 1 Dec 2015