1HFY21 net profit of RM121.0m (+0.6%) at 45% each of our and consensus’ estimates and the absence of dividend came within expectations. We expect the group to remain resilient ahead, as its core fishery segment continues to hold fort on the strength of stable fish cycle and sustained demand for its fishery products. Maintain MARKET PERFORM with unchanged TP of RM6.60.

In-line with expectations. 1HFY21 net profit of RM121.0m came within expectations at 45% each of our and consensus estimates, as 1H contributes c.48%, historically. No dividend was announced, as expected.

Results’ highlights. YoY, 1HFY21 net profit rose marginally by 0.6%, largely sustained by robust sales volumes and greater economies of scale from its fishery segment, which saw PBT rising 35%, coupled with better locked-in CPO prices and favourable Indonesian Rupiah movement compared to end-March 2020 (USD/IDR at 16,300 vs 14,800 end-September 2020) from its Palm Oil segment, which led to a tremendous PBT growth to RM12.9m (from 1HFY20 of RM1.8m). Nonetheless, the foresaid merits were partially shadowed by: (i) higher ETR of 28.7% (+10.1ppt) due to tax expense recognised on the unrealized forex gain led by Indonesian Rupiah movement, as well as (ii) weaker Livestock segment (PBT -34%), dragged by poorer Family Mart performances during MCO, and depressed ASP in Peninsular Malaysia

QoQ, net profit rose 38%, on the back of stronger fishery segment (+19% PBT), coupled with better Livestock segment (+525% PBT) due to recovery observed for both Family Mart and farm products following the easing of movement restrictions. The Palm Oil segment, however, plunged into losses of RM1.6m (versus 1QFY21 PBT of RM14.5m) attributable to unfavourable forex fluctuations.

Outlook. Moving forward, the group’s earnings are anticipated to be mainly anchored by its MPM segment (historically taking up c.57% of group PBT), on the back of: (i) stable fish cycle, coupled with (ii) persistently robust sales momentum especially from the frozen surimi- based products. We take comfort in the resiliency of the group’s anchor segment, as it has been largely unaffected by the Covid-19 outbreak. Meanwhile, we expect FamilyMart to see gradual improvements ahead, mainly underpinned by normalising retail footfall post lockdown. The group is on track to meet its FY22 target of 300 locations, with c.212 stores opened to date. Hence, we reiterate our view that this segment will be an exciting avenue of growth, premised on its higher margin fresh food content.

Post results, we made no changes to our estimates.

Maintain MARKET PERFORM with unchanged TP of RM6.60, based on an unchanged 54.0x FY22E PER, closely in-line with the stock’s +1.0SD over its 3-year mean PER). While valuation appears rich at this level, we believe it is justified, premised on its resiliency and rosy earnings growth expectations of c.13-9% for FY21-22. Nonetheless, the current valuations may have priced in the foresaid merits, limiting its near-term upside potential. Risks to our call include better/worse- than-expected MPM sales.

Source: Kenanga Research - 30 Nov 2020