FY20 CNP of RM403.7m (-2%) and dividend of 60.0 sen are deemed to be within expectation. While uncertainties brought by the pandemic may disrupt the expected recovery ahead, earnings should continue to be supported by resilient in-home consumption, as well as the group’s robust export business. Maintain OP with lower TP of RM33.80 as we ascribed a lower FY21E PER of 28.0x, taking into account the lack of visibility for its previous Dairy Farming plan.

Within expectations. 12MFY20 Core Net Profit of RM403.7m (after stripping off gains of disposal of intangible asset of RM7.8m and property development cost write off of RM1.1m) came in within expectations, making up 99% of our and 98% of consensus’ estimates. The announced dividend of 33.0 sen (Full year: 60.0 sen) also matched our expectation perfectly.

Saved by sturdier Thai operations. YoY, 12MFY20 CNP slipped 2%, mainly attributed to weaker Malaysia operations, which saw operating profit dropping 10% on the back of softer 3QFY20 sales from its out-of home consumption channels during the country-wide lockdown, as well as higher raw material costs. However, this was meaningfully cushioned by stronger performances from its Thailand operations, with operating profit rising 5%, as greater operational execution coupled with swift recovery in Indochina and export markets managed to mitigate the softer domestic Thailand demand brought by the emergency decree.

QoQ, 4QFY20 revenue grew by 4%, mainly boosted by solid post lockdown recovery seen in its Malaysia operations (+7% sales) backed by sustained in-home consumption and demand for dairy products. Despite that, CNP came in weaker by 16% QoQ, dragged by poorer operating profit (-20%) from its Thai operations attributed to higher A&P spends and input costs.

The calm within the chaos. Moving forward, uncertainties surrounding the resurgence of Covid-19 globally as well as the political unrest in Thailand may temper with the anticipated earnings recovery. However, we believe the group would be able to weather through these uncertain times, on the force of (i) resilient in-home consumption demand which is largely unfazed by the pandemic, (ii) robust export sales of RM796m (+15% YoY), which was in-line with the group’s pre-pandemic target of RM800m in FY20, (iii) as well as its sturdy balance sheet. On the other hand, while the group had a setback on the failed acquisition of MSM’s Ladang Chuping land (initially intended for its venture into Dairy Farming), the current weak economic environment may work well to its advantage as there may be other more attractively-priced land offers.

Post-results, we maintain our FY21E earnings forecast and introduce FY22E numbers.

Maintain OUTPERFORM on lower TP of RM33.80 (from RM36.20) based on a lower FY21E PER of 28.0x (from 30.0x), which is closely in line with the stock’s 3-year mean. The downgrade of valuations is to account for the lack of visibility and clear timeline for its previous plan to venture into Dairy Farming. We deem our valuations to be fair, premised on: (i) its sturdy fundamentals and resiliency which could provide some degree of comfort under the current market uncertainty, coupled with (ii) premium valuations attached to large-cap F&B stocks in lieu of their earnings defensiveness. Yet, dividend could be a slight dampener with the anticipated low yield of c.2%. Risks to our call include: (i) slower than-expected growth in Thailand F&B business, and (ii) higher-than expected operating costs

Source: Kenanga Research - 4 Nov 2020