INVESTMENT HIGHLIGHTS

• 9MFY19 core net income below estimate

• Core net income for period slid 6%yoy to RM22.3m

• 3QFY19 core net income dropped 15%yoy to RM11.2m

• CNI estimates for FY19F/FY20F adjusted by -8%/+7%

• Maintain NEUTRAL with higher TP of RM1.79

9MFY19 core net income below estimate. Fima Corporation Berhad’s (FIMACOR) 9MFY19 core net income (CNI) of RM22.3m missed our expectation as it makes up 69% of our FY19 forecast. The negative deviation is mainly due to lower than expected fresh fruit bunch (FFB) volume. We have excluded RM23.6m of write-back on impairment loss on property, plant and equipment in our CNI calculation.

Core net income for period slid 6%yoy to RM22.3m while revenue fell 16.8%yoy to RM175.0m. The decline in earnings can be attributed to lower volume and price for its oil palm production and processing division. During the first nine months, FFB volume slipped 9.4%yoy to 121,544 tonnes. Crude palm oil (CPO) price for the period was down by 14.3% to RM1,964 per tonne. "Production of security and confidential documents" (PSCD) division revenue dipped 5.4%yoy to RM103.0m but PBT jumped by 32.1%yoy to RM25.3m due to better sales mix and higher write back of inventories and provision for warranty by RM4.5m.

3QFY19 core net income dropped 15%yoy to RM11.2m mainly due to revenue that fell 22% to RM53.4m. Sequentially, CNI surged 119%qoq although revenue declined by 24%qoq. The increase in 3QFY19 CNI compared to 2QFY19 was mainly due to lower losses from the Malaysia plantation estates and lower manufacturing costs.

CNI estimates for FY19F/FY20F adjusted by -8%/+7%. We have lowered our FFB volume assumption for FIMACOR following the weaker than expected volume for 9MFY18. Subsequently, we reduced our FY19F CNI estimate by -8% to RM30.2m. However, we adjusted our FY20F CNI by +7% to RM33.8m in view of the improvement in profitability for its PSCD division.

Maintain NEUTRAL with higher TP of RM1.79 (previously RM1.76) as we rolled over our base year to FY20F. The adjustment is in line with higher earnings estimated for the PSCD division in FY20F. Our TP is based on Sum-Of-Parts valuation (Refer Below).

Source: MIDF Research - 25 Feb 2019