INVESTMENT HIGHLIGHTS

• FY18 Core Net Income is below expectation

• Weak performance from PSCD division

• Improved performance from the plantation division

• Earnings estimate reduced

• Downgrade to NEUTRAL with TP of RM1.95

FY18 Core Net Income is below expectation. Fima Corporation Berhad (FIMACOR) FY18 Core Net Income (CNI) of RM32.3m is below expectation as it makes up only 80% of our forecast. The negative deviation is caused by weaker than expected earnings in the “production of security and confidential documents” (PSCD) division. Core net income exclude RM4.9m net reversal of provision and other off items. As expected, a final dividend of 7.5 sen is announced.

Weak performance from PSCD division. The lower revenue at the Group level is caused by 39% yoy decline in the PSCD division. This has more than offset the increase in plantation division revenue by 4% yoy to RM138.1m. We gather that the revenue decline in PSCD division is caused by expiration of the contract to supply certain travel documents in 1QFY2018.

Improved performance from the plantation division. Plantation division turned profitable in FY18 with PBT of RM41.1m (against loss before tax of RM2.5m last year due to impairments). The improved performance is caused by surge in FFB volume by 33% to 175,425 tonnes. This has more than offset the lower CPO price of RM2342 per tonne (down 11% yoy).

Earnings estimate reduced. We have revised down our revenue and earnings assumption for the PSCD division. As a result, our FY19 CNI forecast is cut by 35% to RM36.7m.

Downgrade to NEUTRAL with TP of RM1.95. Our TP is based on Sum-Of-Parts valuation (Refer Below). While we are positive on the outlook for plantation division, this is neutralised by the increasingly challenging earnings prospect for PSCD division.

Source: MIDF Research - 31 May 2018