Period  2Q13 and 1H13

Actual vs. Expectations  The reported 1H13 core net profit* of RM215m is below expectation as it only made up 32% of consensus forecast (RM678m) and 30% of our forecast (RM723m).

 We believe this is caused by lower-than-expected CPO prices and margin for its downstream division.

Dividends  No dividend was announced and this is a negative surprise to us. Note that in 2Q12, the Group announced a dividend of 5.5 sen per share. Nevertheless, the Group reiterated its dividend policy to distribute at least 50% of its net profit as dividend.

Key Results Highlights  YoY, 1H13 core net profit tumbled 42% to RM215m as CPO prices slipped 29% to RM2279/mt. However, this is mitigated by better performance from its sugar division (PBT +32% to RM220m).

 QoQ, 2Q13 core net profit declined 49% to RM73m as plantation division’s PBT plunged 55% to RM81m due to higher replanting expenses (+32%) and higher staff costs (+49%). The downstream division sank into a loss before tax of RM14m against a PBT of RM17m in 1Q13.

Outlook  Current low CPO prices and the latest earnings miss should limit the share price upside.

Change to Forecasts  FY13E earnings is cut by 16% to RM605m after assuming lower CPO prices of RM2400 (from RM2500) and lower margin for its downstream division.

 FY14E earning is trimmed by 3% to RM871m after assuming lower margin for its downstream division. We maintain our FY14E CPO prices of RM2700 on optimistic view of stronger CPO prices on the back of potential low soybean oil supply and strong crude oil prices.

Rating   Maintain MARKET PERFORM

 Despite the weak 2Q13 result, share price should be supported by the strong liquidity in the local market.

Valuation  We have trimmed our TP to RM4.45 (from RM4.60) based on unchanged 18.7x Fwd. PE on lower CY14E EPS of 23.9 sen (from 24.5 sen).

Risks  Lower than expected CPO prices and downstream division margin.

Source: Kenanga