Review

• KFIMA’s 9MFY18 results came in above expectations. Excluding unrealised forex and other non-core items, 9MFY18 core net profit decreased by 4.6% YoY to RM33.0mn, accounting for 88% of our full-year earnings estimates. The deviation was mainly due to better product mix.

• Manufacturing: 9MFY18 revenue plunged 43.6% YoY to RM108.9mn, mainly due to decrease in sales of travel document. On the back of lower revenue, PBT decreased by 60.4% YoY to RM19.2mn.

• Plantation: 9MFY18 PBT increased by 58.3% YoY to RM23.41mn, mainly driven by higher FFB yield, which resulted in higher CPO and CPKO sales volume. CPO and CPKO sales volume increased 9.8% and 63.6% YoY to 36,292 tonnes and 3,394 tonnes, respectively. The average selling price of CPO decreased by 9.2% YoY to RM2,292/tonne while the CPKO price decreased tremendously by 21.2% to RM4,234/tonne.

• Bulking: 9MFY18 PBT flattish at RM16.7mn, in tandem with a 0.2% drop in revenue.

• Food: 9MFY18 revenue increased by 13.4% YoY to RM91.1mn, driven by higher local sales of canned tuna as well as exports of tuna products. Nonetheless, PBT decreased to RM2.4mn (-70.5% YoY) mainly due to forex loss of RM3mn. Excluding the forex impact, PBT would have improved by more than threefold to RM5.4mn.

• There was no dividend declared for the quarter under review.

Impact

• FY18 net profit was revised upward by 6.5% to RM39.9mn. Meanwhile, FY19 and FY20 have been tweaked up by 1.4% to RM41.5mn and RM47.1mn, respectively.

Outlook

• Following the expiration of a supply contract for Malaysian passport, management will realign its efforts to focus on establishing new strategic alliances by developing new products and solutions.

• FFB yield is recovering and is expected to improve further. We expect FFB production growth to accelerate over the next three years, mainly due to new estates coming into maturity in Sarawak and Peninsular Malaysia.

• The lower contribution from the manufacturing division will be partly offset by higher profit from the plantation division.

Valuation

• Maintain KFIMA’s target price at RM1.89, based on DDM valuation with cost of equity of 8.5% and the terminal growth rate of 4.0%. The TP implies a forward CY18 PER of 13x. We continue to like KFIMA due to its decent dividend yield (5.9%), healthy balance sheet. In addition, share price looks attractive at current level. Maintain BUY.

Source: TA Research - 23 Feb 2018