Period     4Q13 and FY13

Actual vs. Expectations   FY13 core net profit* of RM1.63b is below consensus expectation as it makes up only 92% of consensus forecast (RM1.78b). However, it came in close to our forecast of RM1.62b.

We believe consensus may have been too bullish on CPO prices assumption for FY13.

Dividends    As expected, a second interim single tier dividend of 8.5 sen was announced.

Key Results Highlights   YoY, FY13 core net profit declined 9% to RM1.63b due to a 22% decline in CPO prices to RM2433/mt. However, this was mitigated by strong operating profit growth in its downstream division (+124% to RM576m) and property development division (+23% to RM555m).

QoQ, 4Q13 core net profit declined 37% to RM292m as the downstream division operating profit tumbled 43% to RM124m on lower margin experienced by the industry as palm oil inventory level declined.

Outlook    Short-term share price should be supported by the listing of its property division. However, longer-term outlook (post the demerger) may be challenging due to prevailing low CPO prices and lack of FFB growth support from younger trees.

Change to Forecasts   Maintain our FY14E-FY15E core net profit of RM1.73b-RM2.09b. Note that we have reduced CY13E CPO price estimate to RM2400 (from RM2500). However, we have increased our FY14E operating margin estimate for downstream division to 4.8% (from 4.1%). Net impact is unchanged FY14E earnings.

Rating  Maintain MARKET PERFORM

Valuation     Maintain our TP of RM5.40 based on an unchanged Fwd. PER of 18.1x to the CY14E EPS of 29.8 sen.

Risks    Worse than expected CPO prices.

Lower than expected downstream margin.

Possibility of delayed property division IPO pending approval from bond holders.

Source: Kenanga