1HFY21 CNP of RM194m came in below our/consensus estimates at 43% each. Top-line also came in at 43% of fullyear estimate. No dividend in 1HFY21, as expected. Slower manufacturing sales and margin compression in 2QFY21 was the main drag. Property segment recovered with steady growth QoQ and YoY. We marginally reduce FY21E CNP by 3% to RM439m on weaker manufacturing segment. Maintain MP with slightly lower SoP-driven TP of RM3.75 (from RM3.78).

1HFY21 underperformed. 1HFY21 CNP of RM194m came below our/street full-year expectations at 43% each. The deviation was mainly from lower-than-expected top-line of RM1.7b, at 42%/43% of our/street expectations. No dividend, as expected.

YoY, 1HFY21 CNP of RM194m rose 7% despite a 5% decline in revenue to RM1.7b. This was contributed by: (i) higher EBIT margin, which rose 1.6ppt to 16.1% on the back of higher manufacturing EBIT margin (+2ppt to 11%), and (ii) lower effective tax rate of 20% (vs. 24%). Revenue declined mainly due to the 9% decrease in manufacturing revenue, which the Group attributed to lower sales tonnage of packaging products. However, the Group’s lower resin costs in 1HFY21 helped lift manufacturing EBIT by 9%, boosted by higher EBIT margin of 11% (vs. 9%). On the property segment, revenue rose 6% from robust property sales especially affordable housing, and construction progress. With the property EBIT margin constant at 29%, property EBIT rose in tandem by 4%. Similar to 1HFY20, the Group did not declare dividends in 1HFY21.

QoQ, 2QFY21 CNP rose 11% to RM102m, in-line with a 13% increase in revenue. The increase in revenue was driven by a 6% increase in manufacturing revenue and 32% increase in property revenue, which are both encouraging signs of recovery as both segments saw decline in revenue (-6% and -34%, respectively) in the previous quarter. However, higher resin costs weighed on its manufacturing EBIT margin by 1.5ppt to 10.2%, bringing manufacturing EBIT down by 8%. Conversely, higher property margin (+3.3ppt) of 30% coupled with strong property sales growth lifted property EBIT up by 48%. All in, the net result was an 11% increase in CNP.

Moving forward, we expect the manufacturing segment to continue facing headwinds mainly due to slower-than-expected sales recovery and higher resin costs. As such, the Group will be focused on ramping up utilization, targeting c.80% over the next few years, including its Arizona plant in the United States. On the property segment, we believe that the accommodative monetary policy environment bodes well for the Group by helping to boost demand for its affordable homes.

Post results, we marginally decrease FY21E CNP by 3% to RM439m (from RM454m) to account for slightly weaker plastic sales and higher resin costs (FY21 assumption: USD1,100/MT). We maintain our FY22 estimates.

Maintain MARKET PERFORM with a slightly lower SoP-derived TP of RM3.75 (from RM3.78) on the earnings adjustment. We maintain our ascribed 12.5x PER for the property segment and slightly lower the ascribed PER for the manufacturing segment from to 14.5x (from 15x), at +0.5SD to reflect uncertain sentiment affecting resin prices.

Source: Kenanga Research - 10 Mar 2021