INVESTMENT HIGHLIGHTS

• 9MFY18 Core Net Income is below expectation

• Weaker than expected earnings in the “production of security and confidential documents” (PSCD) division

• Improved performance from the plantation division

• Completed acquisition of Java Plantations

• Earnings estimate reduced

• Maintain BUY with unchanged TP of RM2.60 as we roll forward our valuation to FY19

9MFY18 Core Net Income is below expectation. Fima Corporation Berhad (FIMACOR) 9MFY18 Core Net Income (CNI) of RM32.2m is below expectation as it made up 57% of our full year earnings estimate. Core net income excludes RM1m provision and other one off items. As expected, no dividend is announced in the third quarter of the financial year.

Weaker than expected earnings in the “production of security and confidential documents” (PSCD) division. Note that PSCD division profit before tax (PBT) has declined by 60% yoy to RM19.2m as its revenue decreased 44% yoy to RM108.9m (against our previous assumption of 15% decline yoy for FY18). The decline in revenue is mainly caused by expiration of the contract to supply certain travel documents.

Improved performance from the plantation division. The plantation division PBT surged by 95% yoy to RM32.5m as its FFB volume surged by 39% to 133,966 tonnes. This has more than offset the lower CPO price of RM2292 per tonne (down 9% yoy). The strong FFB volume growth is caused by the recovery from El Nino which affected the production of FFB in the past.

Completed acquisition of Java Plantations. Separately, FIMACORP announced that it has completed the acquisition of Java Plantations which holds 80% stake in a 1331 ha of leasehold plantation land in Jeli, Kelantan. We are long term positive on the news as FIMACORP total planted landbank will be increased by 18% and it is earnings accretive from FY20 onwards. There is synergy to be realized as this landbank is located near FIMACORP existing plantation estates in Gua Musang and Kuala Krai, Kelantan.

Earnings estimate reduced. We have revised down our revenue and earnings assumption for the PSCD division. As a result, our FY18 CNI forecast is cut by 29% to RM40.5m. FY19 CNI forecast is lowered by 21% to RM50.3m.

Source: MIDF Research - 21 Feb 2018