1Q18 PATAMI (+<1%) of RM42.2m is within estimates. The absence of dividends declared was also expected. Going forward, outlook should be driven by initiatives to expand all segments across the board. In the shorter term, palm oil activities could contribute further with higher production levels and better CPO prices. Maintain MARKET PERFORM with a higher TP of RM4.90 as we roll over our valuation base year to FY19E.

1Q18 within expectations. 1Q18 PATAMI of RM42.2m (+<1%) is within our/consensus estimates, making up of 20% of both full-year estimates following unfavourable seasonal factors typically experienced in April-June periods. No dividend was announced, as expected. The group tends to pay a single interim dividend every year, which we forecast to be 5.0 sen for FY18.

YoY, 1Q18 revenue of RM778.5m grew by 16% led by better performance from POA and ILF activities, offset by stagnant sales from the primary MPM segment. PBT levels declined by 5%, a cumulative result from: (i) low marine product contribution (-11%) and margins from the seasonal low fish cycle, (ii) stronger palm oil earnings (+>100%) on higher FFB production and better CPO prices, and (iii) lower livestock segment earnings (-19%) largely from higher sales contribution of feed raw materials, which command low margins, alongside softer demand for eggs, which was impeded by higher market prices. However, on a lower effective tax rates in1Q18, PATAMI registered at RM42.2m (+<1%).

QoQ, 1Q18 sales was lower by 4% as poorer livestock contributions (- 10%), offset the flattish marine segment (+1%) and stronger palm oil activities (+11%). PBT numbers declined further by 18%, while marine products (+29%) registered higher sales margins on more favourable pricing, palm oil (-43%) and livestock products (-51%) declined largely due to a declining price and margin trend since 4Q17.

Longer-term view. While recent results may appear unexciting, we are still optimistic on the group’s longer-term growth trajectory in lieu of the initiatives set in motion. Some of which include: (i) increasing its marine deep-sea fishing fleet and frozen seafood processing competencies, (ii) investing into larger feed mill production, and (iii) continuous focus into expanding the FamilyMart convenience chain in the domestic scene. On hindsight, a larger profile of the group’s palm oil plantation has achieved maturity and is looking to contribute more favourably to the segment in the short term, sans any significant retracements on CPO prices.

Post results, we maintain our FY18E/FY19E earnings assumptions.

Maintain MARKET PERFORM with a higher TP of RM4.90 (from RM4.70, previously), as we roll over our valuation base year to FY19E on an unchanged 27.0x PER, which is in line with the stock’s 3-year mean at +0.5 SD. While the group presents strong fundamentals, we believe most of the positives may have already been priced in from its rich valuations. In addition, the added liquidity from the proposed 3:10 bonus issue may further stretch the stock’s valuation where it is now trading at 27.2x PER on FY19E EPS.

Source: Kenanga Research - 25 Aug 2017