We are initiating coverage on Kumpulan Fima Berhad (KFima) with a Hold rating and a target price of RM1.89, based on DDM valuation methodology. The Group has been consistently paying substantial dividend yield of 4% - 5% in the past five years. We expect a lower profit contribution from the manufacturing division due to the expiry of travel documents contract and stiff competition. However, this could be partly offset by higher profit from the plantation and food divisions. We believe the share price is well supported by its good dividend yield and healthy balance sheet.

Core Business

KFima was listed on the Main Board of KLSE in 1996. It is a diversified group with businesses in manufacturing, plantation, bulking and food sectors. The Group’s business geographical segments include Malaysia, Papua New Guinea and Indonesia.

Investment Case

• Manufacturing division hit by non-renewal of Malaysian passport contract

• Challenging bulking business

• The plantation's long-term story remains compelling

• Healthy balance sheet to look out for acquisition opportunities

• Awesome dividend yield

Key Risks

• Stiff competition in the manufacturing division

• Foreign currency risk

• Highly volatile crude palm oil (CPO) and palm Kernel (PK) price

• Foreign labour shortage

• Liquidity risk

Forecasts/assumptions

• FFB production growth to be in the range of 14% - 19% in FY18-FY20

• FY18/FY19/FY20 average CPO price of RM2,700/RM2,800/ RM2,800 per tonne.

• Estimated net profit stood at RM37.5mn/RM40.9mn/RM46.5mn for FY18/FY19/FY20.

Source: TA Research - 13 Sept 2017