9M17 PATAMI (+6%) was broadly within expectations. A special dividend of 3.0 sen came as a positive surprise. We believe earnings prospect should remain intact with the resilient nature of its marine products and livestock segments, with better CPO prices benefiting its palm oil segment. No changes to our earnings estimates. Maintain UNDERPERFORM but increase our TP to RM4.23 as we roll over our valuation base year to FY18.

9M17 PATAMI was broadly within expectations. 9M17 PATAMI of RM148.7m was broadly within expectations, consisting of 70%/71% of our/consensus full-year estimates. A special dividend of 3.0 sen was declared, which was a positive surprise as we anticipated a single payment, usually declared on the fourth financial quarter.

YoY, 9M17 revenue of RM2.2b grew by 6% as a result of the improving performance (+c.6% YoY) across all business segments. However, 9M17 PBT saw a flattish decline (<1%) to RM198.9m as the marine products segment (-7% YoY) saw a fall in demand from surimi and prawn aquacultures, which commanded stronger margins. However, this was mitigated by stronger results from both palm oil (+39% YoY) and livestock (+5% YoY) segments due to more favourable CPO pricing and greater contribution from its Indonesian unit, as well as better sales mix from feed raw material trades, respectively.

QoQ, 3Q17 sales of RM799.1m grew by 10% on the back of stronger absolute sales in the livestock segment (+8%), followed by the palm oil (+32%) and marine products (+5%) segments. On PBT terms, the group registered RM75.4m with a 7% QoQ growth, attributed to a recovery in the marine products segment (+18%), likely from higher volumes of surimi sales and palm oil (+237%) from better CPO prices and increasing contribution from the group’s Indonesian unit. However, this was capped by a decline in contribution from the livestock segment (-32%) as there was a lower contribution from its Indonesian livestock unit and lower raw material trade margin.

Business continued to be sustainable. In spite of the poor consumer sentiment in the domestic market, we believe the group will continue to deliver sustainable profits underpinned by the resilient export-driven marine products segment. In addition, the recovery of CPO prices brings about a welcomed change as initial headwinds had suggested subdued prices to remain. Further we believe the segment may yet yield sustainable results with some minor decline in CPO prices. Meanwhile, while we believe the group’s new venture into the convenience chain business for the new FamilyMart brand has been well executed and is perhaps capable of withstanding competitive forces from existing players in the market, we believe may not contribute significantly to the group in the short-term (with four existing stores operational).

Earnings estimates maintained. We made no changes to our earnings assumptions for FY17 and FY18.

Maintain UNDERPERFORM with a higher TP of RM4.23 (from RM4.16, previously) as we roll over our valuation base year to FY18 with a revised 23.5x PER (from 23.1x PER), as we relook into the stock’s 5-year mean PER at +0.5 SD. While the group presents strong fundamentals, we believe most of the positives may have already been priced in. In addition, the added liquidity from the proposed 3:10 bonus issue announced yesterday may further stretch the stock’s valuation where it is now trading at 24.7x PER on FY18E EPS.

Source: Kenanga Research - 01 Mar 2017