• FY17 earnings is below expectation

• This is due to lower than expected margin in the resource based manufacturing division

• Plantation division PBT improved 46% yoy

• Earnings estimate reduced

• Maintain NEUTRAL with lower TP of RM4.95

FY17 earnings is below expectation. FY17 CNI of RM1.01b is below consensus and our expectation. Note that it makes up 90% and 87% of consensus and our estimate, respectively. Reason for the negative deviation is due to weaker than expected margin in the resource based manufacturing (RBM) division at 2.8%. We gather that RBM refining sub-segment margin has declined yoy in which we believe is caused by the challenging operating environment for the refining industry in Malaysia.

Plantation division PBT improved 46%yoy. Plantation division PBT increased 46% yoy to RM1.23b due to higher CPO price (+23% to RM2766/MT). FFB volume is flat yoy at 3.16m MT.

Earnings estimate reduced. FY18 CNI is reduced by 2% to RM1.26b after assuming lower margin for the RBM division to reflect the challenging market environment for Malaysia refining industry. Having said that, oleochemical sub segment should perform better in FY18 due to lower and more stable feedstock price. Specialty fats sub segment should register higher sales due to impending trans fat ban in US in June 2018.

Maintain NEUTRAL with lower TP of RM4.95: The lower Target Price is due to lower FY18 EPS with unchanged Forward PE of 24.7x (+0.5SD Valuation). Maintain NEUTRAL as the higher earnings prospect from the plantation division has been largely neutralized by lackluster outlook for RBM division.

Source: MIDF Research - 29 Aug 2017