Review

• KFIMA’s 1QFY19 results came in within our expectations. Excluding unrealised forex and other non-core items, 1QFY19 core net profit surged by 54.6% YoY to RM9.0mn, accounting for 25% of our full-year earnings estimates.

• Lower contribution from the manufacturing and plantation divisions had been partly offset by higher contribution from the bulking division as well as lower tax rate.

• Manufacturing: 1QFY19 PBT decreased by 14.7% YoY to RM4.4mn on the back of lower revenue (-13.8% YoY). The decline in revenue was mainly due to decrease in sales of travel document.

• Plantation: Due to lower sales volume and selling price of CPO, the division register a lower PBT of RM0.9mn (-88.5% YoY). CPO sales volume decreased by 37.1% YoY to 9.0k tonnes. The average selling price of CPO decreased by 18.2% YoY to RM2,102/tonne.

• Bulking: 1QFY19 PBT increased by more than 100% YoY to RM9.1mn, underpinned by 60.4% growth in revenue. The commendable results were driven by higher contribution from most of products segment.

• Food: 1QFY19 revenue decreased by 14.0% YoY to RM24.8mn, dragged by lower sales volume of canned tuna and lower selling price of canned mackerel. Nonetheless, the group registered a PBT of RM1.6mn compared to a LBT of RM0.3mn mainly due to lower forex loss.

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

Impact

• Earnings forecasts were revised lower for FY19-FY21 by 0.2%-1.7%, respectively, after incorporating audited FY18 figures into our model.

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.

• 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 8.4% and the terminal growth rate of 4.0%. The TP implies a forward CY19 PER of 15x. We continue to like KFIMA due to its decent dividend yield (5.4%) and healthy balance sheet. Maintain BUY.

Source: TA Research - 29 Aug 2018