Period    3Q12/9M12

Actual vs. Expectations     The 9M12 net profit (NP) of RM73.8m came in below the consensus estimate of RM102.8m, representing 71.8% of its full-year estimate. However, it was in line with our estimate, making up 77.3% of our forecast of RM95.5m.

Dividends    No dividend was declared for the quarter as expected. An estimated 4.7 sen in DPS should be declared around Apr- May 2013 as the final dividend for FY12.

Key Result Highlights     QoQ, Revenue and PBT declined 8.2% and 2.7%, respectively. The decline was due mainly to lower sales in all divisions. Nevertheless, the drop in PBT was cushioned y better margins recorded by cans (+1.1ppt) and carton (+1.4ppt) divisions.

YoY, the 9M12 revenue increased 7.3% on the back of higher sales registered by the cans (+6.1% YoY), cartons (+7.6% YoY) and contract packaging (+19.1%) divisions. However, both the 9M12 PBT and NP dropped by about 18% YoY, dragged down by the margin squeeze in the cans division. The improved margins seen in the cartons division (+2.5 ppt) was not enough to mitigate the impact of the 5.4ppt decline in the cans' PBT margin above. We believe that the margin erosion of the cans segment was due mainly to a higher cost of material consumed and inventory write-offs during 2Q12.

On a more positive note, the cartons and contract packaging divisions registered better performance compared to last year. Cartons division 9M12 PBT improved by 48.4% YoY. This was mainly attributed to the better sales in its domestic and export market for the food and beverage sectors in both its Malaysian and Vietnamese operations. Meanwhile, there was also a 12.8% jump in the PBT of the contract packaging division YoY. Beside the improvements in both domestic and export sales, we believe the better profit in this division was due to the exclusion of the loss-making discontinued operation in Vietnam, which was disposed off by the group recently.

Outlook     Although there was hiccup in the cans division this year, we remain positive on the company's ability to further improve its production efficiency to continue delivering organic growth ahead and also on its efforts to develop its regional markets.

Change to Forecasts     We have fine-tuned our FY12-13E NP by +1.8% and -7.7% respectively to RM97.2m-RM108.8m (fromRM95.5m-RM117.9m).

Rating     Maintain OUTPERFORM

Valuation      Due to our new lower earnings estimate for FY13, we have reduced our TP to RM2.79 (from RM3.00 previously). Our TP is based on an unchanged Fwd PER of 11.4x over the adjusted FY13 EPS of 24.5 sen (vs. 26.5 sen previously).

Risks     An upswing in commodity prices will hit the company's earnings.

Source: Kenanga