Review

• KFIMA’s FY18 results came in within expectations. Excluding unrealised forex and other non-core items, FY18 core net profit decreased by 36.4% YoY to RM40.9mn, accounting for 105% of our full-year earnings estimates.

• Manufacturing: FY18 PBT decreased by 57.3% YoY to RM25.5mn on the back of lower revenue (-39.7% YoY). The decline in revenue was mainly due to decrease in sales of travel document.

• Plantation: The group reported PBT of RM28.3mn compared to a LBT of RM6.0mn recorded in FY17. To recap, the group recorded an impairment loss on PPE and biological assets in the group’s subsidiary, totaling RM29.4mn in FY17. Excluding this impairment, the PBT would have amounted to RM23.4mn. CPO and CPKO sales volume increased by15.2% and 43.6% YoY to 50.3k tonnes and 4.4k tonnes, respectively. The average selling price of CPO decreased by 10.8% YoY to RM2,342/tonne while the CPKO price decreased tremendously by 24.8% to RM4,431/tonne.

• Bulking: FY18 PBT increased by 24.5% YoY to RM24.9mn, underpinned by 12.8% growth in revenue. The commendable results were driven by higher contribution from the industrial chemical, edible oil and technical fats segments.

• Food: FY18 revenue increased by 13.1% YoY to RM129.3mn, driven by higher local sales of canned tuna as well as exports of tuna products. Nonetheless, PBT decreased by 79.1% YoY to RM1.4mn mainly due to forex loss of RM8.2mn. Excluding the forex impact, PBT would have improved by 46.6% to RM9.6mn.

• The group has declared a final dividend of 9sen/share for FY18, similar to FY17. This translates into dividend yield of 6.1%.

Impact

• Earnings forecasts were revised upward for FY19 and FY20 by 0.7% and 1.3%, respectively after updating FY18 figures.

Outlook

• 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.

• Meanwhile, the demand for storage is expected to improve slightly with the increase in palm oil stock level nationwide. The group is looking at securing longer term contracts with customers as well as handling higher margin products.

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 CY19 PER of 12x. We continue to like KFIMA due to its decent dividend yield (6.1%), healthy balance sheet. In addition, share price looks attractive at current level. Maintain BUY.

Source: TA Research - 31 May 2018