Period

3Q15/9M15

Actual vs. Expectations

9M15 PATAMI of RM9m came in way below expectations compared to our and consensus full-year forecasts of RM166m and RM127m, respectively. The negative variance from our forecast is due to lower-than-expected contributions from plantations, trading & industrial and heavy industries.

Dividends

A third interim single-tier DPS of 6.0 sen was declared which brings 9M15 DPS to 16.0 sen which is within our expectation. Key Result

Highlights

QoQ, 3Q15 EBIT fell 50% to RM60.4m dragged down by losses at plantation and trading & industrials. Plantation sank into an EBIT loss of RM25.1m compared to a profit of RM58m in 2Q15 due to lower average CPO prices. The average palm oil price fell 4% to RM2,090 per MT. However QoQ, 3Q15 net profit rose 106% to RM6m compared to RM2.9m in 2Q15 due to lower effective tax rate of 31% compared to 39% in 2Q15.

YoY, 9M15 PATAMI collapsed due largely to lower-thanexpected contributions from plantation and heavy industries divisions, and further dragged down by dismal performance from trading & industrial. The plantation division was hit by decline in FFB production and bearish palm product prices which negated the gain on disposal of land. Trading and industrial division was lower due to stockholding losses arising mainly from decline in volume and fuel prices and further retrenchment cost of non-core operations. Heavy Industries division was mainly lower due to provision for foreseeable losses for the restoration of KD Perantau in 2Q15. Nevertheless, contribution from joint-venture companies, namely Contraves Advanced Devices Group and BHIC Aero Services Sdn Bhd was better at RM20m (69% YoY).

Outlook

We expect the trading & manufacturing, and pharmaceutical divisions to show growth and deliver sustainable recurring incomes. The trading & manufacturing division’s growth will be underpinned by its captive market from Boustead Petroleum Marketing Sdn Bhd, which conducts marketing and distribution of petroleum products under the BHPetrol retailing brand. Its pharmaceutical division is supported by Pharmaniaga Logistics’ government concession agreement.

Plantation earnings, meanwhile, will hinge largely on CPO price movements since 91% of its plantation estates are already matured of which outlook over the medium-term looks less than promising.

The heavy industries division is expected to remain stable but risk lies in potential future cost overruns from its legacy commercial projects.

Change to Forecasts

We are downgrading our FY15E and FY16E net profits by 28%, following the weak set of results after taking into account lower contributions from plantations, financials and trading & industrials.

Rating & Valuation

Correspondingly, our SoP target price is cut from RM4.10 to RM 3.50 (Due to the erratic quarterly earnings, we are applying a 25% discount to its SoP valuation). Downgrade to UNDERPERFORM from MARKET Perform.

Risks

Further weakness in CPO prices and delays in the delivery of LCSs and cost escalations.

Source: Kenanga Research - 1 Dec 2015