9M19 PATAMI of RM173.5m (+11%) and absence of dividends are within expectations. Better marine segment’s yield and expanding base of the integrated livestock segment as well as the eventual turn-around of the group’s convenience store chain could translate well to the group’s long-term profitability. We maintain our UP rating and TP of RM5.70.

9M19 broadly within. 9M19 PATAMI of RM173.5m is deemed broadly within our/consensus estimates, making up 81%/76% of respective fullyear expectations. No dividend announced, as expected. The group typically pays a single interim dividend annually; expected to be 4.5 sen for FY19.

YoY, 9M19 revenue of RM2.72b (+10%) was thanks to higher catch rates from the marine products manufacturing (MPM) segment and growth in output and sales from integrated livestock farming (ILF). Palm oil activities (POA) continued to be weaker from softer CPO prices and unsold inventories. Regardless, PBT grew slightly by 9% thanks to stronger results from the two divisions mentioned above. 9M19 PATAMI registered at RM173.5m (+11%) after incurring lower effective taxes of 14.5% (0.8ppt).

QoQ, 3Q19 revenue of RM978.9m grew by 6% on the back stronger sales from both MPM and ILF. PBT soared by 39% due to better margins from MPM and POA due to better conditions leading to higher catch rates and FFB yields, respectively. ILF, however, continued to churn stable margins. Due to higher effective taxes during the quarter (19%, +10.8ppt), 3Q19 PATAMI closed at RM69.1m (+14%).

On better steps. The continued growth in the MPM segment presents a welcomed change as it was previously bogged down by highly unfavourable weather conditions, which lowered catch rates. Further gains could come from its new surimi plant and fleet expansion. The POA segment may trail poorly if weak CPO prices persist. Still, contribution from this segment could remain less meaningful to the group as opposed to its other businesses (i.e. <10% PBT). ILF has progressively demonstrated strong growth potential from its bases in Vietnam and Indonesia. Further, the group’s feed milling production could provide some buffer against commodity fluctuations, which had proven detrimental to other local players in the market. On the other hand, the FamilyMart convenience store chain is expected to generate profits by FY20 when it achieves its optimal store base of 120 locations.

Post results, we leave our FY19E/FY20E assumptions unchanged.

Maintain UNDERPERFORM and TP of RM5.70. Our valuation is based on an unchanged 40.0x FY20E PER (within the stock’s +1.5SD over its 3- year mean PER). We believe the rich valuation is reflective of a higher investor appetite, attributed to the stock’s defensive quality in the consumer staples space. However, we also believe that current trading valuation could be excessive due to its: (i) low dividend prospects at c.1% (vs. best peer’s yield of 4%), and (ii) slower earnings growth expectations c.6% (vs. peers’ average of +10%).

Risks to our call include: (i) significant improvement to MPM sales, (ii) significant uptick in palm oil prices and sales volume, (iii) better-thanexpected demand of poultry products abroad.

Source: Kenanga Research - 1 Mar 2019