1QFY21 CNP of RM272m (+1% YoY, -16% QoQ) came in within our/consensus expectation at 23%/25% of full-year estimate. Management noted that Industrials segment contribution will be trending weaker this FY21 compared to FY20 largely due to the lower coking coal prices and China import restriction on Australia, but will be off-set by stronger Motor Vehicles segment contribution led by its main China market (BMW). Maintain MARKET PERFORM with SoP-derived TP of RM2.30 which implied PER of 13x on FY21E EPS.

1QFY21 within expectations. 1QFY21 CNP of RM272m (+1% YoY, - 16% QoQ) came in within our/consensus expectation at 23%/25% of full-year estimate. No dividend for the quarter as expected.

Results’ highlights, 1QFY21 core CNP grew slower (+1% YoY, -16% QoQ) than revenue (+15% YoY, +23% QoQ) mainly due to: (i) higher depreciation charges especially for non-core business (+24% YoY, +5% QoQ), and (ii) relatively higher tax expenses at RM120m (+29% YoY, +24% QoQ). In term of segments, the weak CNP growth was due to weaker (i) Industrials profit contribution (-25% YoY, -15% QoQ) due to lower equipment deliveries and parts sales in Australia following the fall in coal prices and peak sales period last quarter, and (ii) Logistics profit contribution (0% YoY, -25% QoQ) due to decline in bulk cargo throughput mainly on stiff competition. These were however cushioned by stronger Motor Vehicles profit contribution (+66% YoY,+1% QoQ) where most of the profit came from the Greater China operations (+78% YoY) mainly attributable to strong vehicle sales in China (+39%) while results from the Singapore operation improved due to higher BMW vehicles sales. Industrials order-book is at RM2,257m (-9% YoY, +2% QoQ) which fluctuates based on completion of work-order.

Outlook. Management noted that most of the group’s operations are in countries/territories that are not subject to significant movement restrictions and the recovery in motor vehicle sales has generally been strong. However, there is also disruption risk to supply chains that may limit sales as there may not be sufficient inventories for sale for certain new models which had been the case for the drop-in unit assemble at Inokom plant (-14% YoY). Increased infrastructure spending from fiscal stimulus measures by various countries would support equipment sales for the Industrial division. However, lower coal prices and import restrictions by China may adversely impact equipment sales in Australia. The Motors operation will continue to be impacted by strong competition, whereas its Port operation will be facing competition from other ports especially with the Chinese government rationalizing ports operations to create a larger port entity.

Maintain MARKET PERFORM with SoP-derived TP of RM2.30 which implied PER of 13x on FY21E EPS. Risks to our call include: (i) lower-than-expected car sales volume, and (ii) lower-than-expected industrials contribution.

Source: Kenanga Research - 27 Nov 2020