- 1Q14 earnings. Yee Lee Corporation (YEELEE) 1Q14 Core Net Profit* (CNP) of RM9.2m came in above expectation as it makes up 27% of our estimate of RM33.7m. Profit contribution from its associated company -Spritzer - came in higher than expected as the contribution of RM2.3m in 1Q14 is already at 37% of our forecast of RM6.2m for FY14. We gather that Spritzer’s earnings has benefited from higher sales of bottled water coupled with a reduction in packaging material cost. We believe that the higher sale volume from Spritzer is due to the water rationing, which occur in 1Q14.

- YoY, CNP improved 13% to RM9.2m as profit contribution from associated company (Spritzer) jumped 74% to RM2.3m due to reason stated above. Plantation division managed to turn around with PBT of RM0.3m against Loss Before Tax of RM0.3m in 1Q13. However, the earnings growth was capped by lower PBT in trading division (-23% to RM2.6m) and manufacturing division (-4% to RM5.9m). As expected, no dividend was announced in 1Q14.

- Good prospect for FY14. We have increased our YEELEE FY14E CNP by 1% to RM34.0m after assuming higher profit contribution from Spritzer. FY15E CNP is also increased by 1% to RM37.8m due to similar reason. Overall, we expect FY14E CNP to grow healthily by 8% to RM34.0m.

- Underappreciated jewel. YEELEE has clean track records of 21 years profitability since its listing in 1993. In addition, net profit has grown at 5-year CAGR of 13% historically to RM31.6m in FY13. Despite the 24% gain in share price since our last report on 18-Mar-2014, we believe YEELEE is still undervalued as it is currently trading at historical PE of 9.6x or 44% discount to its peer average historical PE of 17.2x. In addition, YEELEE is trading below its book value of RM1.87. We believe that all these discounts are not justified due to its growth prospect and strong profitability track record.

- Target Price increased to RM2.10 (from RM2.06 previously). Our Target Price of RM2.10 is based on unchanged Fwd. PE to 11x to a higher FY14E EPS of 19.1 sen (from 18.7 sen). Overall, we expect a potential total return of 17.6% (Upside 15.9% and Dividend Yield of 1.7%) from here.

Source: Kenanga