FY19 PATAMI of RM216.7m (+11%) and dividend of 4.5 sen are within expectations. Better marine and livestock segments will stay as key growth drivers of the group, with Family Mart operation to start contributing in the near-term. Meanwhile, the palm oil segment should still be dampened by poor CPO prices. We believe the stock’s valuations may be stretched against its peers, on less exciting fundamentals. Maintain UNDERPERFORM and TP of RM6.05.

FY19 within. FY19 PATAMI of RM216.7m is within our/consensus estimates, at 95% of both respective full-year expectations. A single interim dividend of 4.5 sen was declared, which we deem to be broadly within our 5.0 sen anticipated payment for the year.

YoY, the stronger 12M19 revenue of RM3.61b (+11%) was propelled by 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) showed prolonged weakness owing to the prevailing weakness in CPO prices and lower stock. Consequently, 12M19 PATAMI came up to RM216.7m (+11%).

QoQ, 4Q19 revenue of RM898.0m fell by 8%. This was due to both MPM and ILF segments experiencing adverse swings in the form of lower seasonal yields and poorer sales from raw material trades. On the contrary, POA businesses saw improvements from better sequential CPO prices, with profits also boosted by solid associates’ performance. As margins were dragged by the abovementioned, 4Q18 PATAMI closed lower at RM43.2m (-38%).

Building a solid base. The group is continuing efforts to expand its key MPM segments. Upgrades to its Hutan Melintang facility and surimi plants, fleets and new aquaculture initiatives could be supplemented by more favourable weather and fish breeding conditions. 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). For the ILF segment, we believe there could be further opportunities for growth in its regional bases (i.e. Vietnam and Indonesia) where the group looks to ramp up production capacity to tap into the vibrant demand. On the other hand, the FamilyMart convenience store chain is expected to generate profits by FY20, having already opened 90 stores as at March 2019.

Post results, we tweak our FY20E earnings by -0.2% as we incorporate FY19 full-year financials. Additionally, we also introduce our FY21E numbers.

Maintain UNDERPERFORM and TP of RM6.05. 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 valuations are due to high investors’ appetite, attributed to the stock defensive quality in the consumer staples space. However, current levels may be excessive owing to: (i) low dividend returns of c.1% (vs. peers’ average of 3-4%), and (ii) its low ROE (vs. peers of up to +100%).

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 - 31 May 2019