Review

• KFIMA’s 2QFY19 results came in within our expectations. Excluding the RM23.6mn write-back of impairment loss on PPE, unrealised forex and other non-core items, 2QFY19 core net profit dropped by 59.8% YoY to RM5.1mn. The lower earnings was mainly due to unfavourable profit mix, which resulted in higher minority interest in the quarter under review. At the adjusted pre-tax level, the earnings increased 12.5% YoY to RM29.5mn.

• 1HFY19 core net profit decreased by 31% YoY to RM14.1mn, accounting for 42% of our full-year earnings estimates. This is in line with our expectation as we expect a stronger 2H results.

• Manufacturing: Despite lower revenue (-9.9% YOY), 1HFY19 PBT increased by 3.9% YoY to RM15.4mn. The increase was mainly due to more favourable sales mix and higher write-back of inventories and reversal of provision for warranty.

• Plantation: This division registered a higher PBT in 1HFY19 as a result of RM23.6mn write-back of impairment loss on PPE. Excluding the write-back, PBT would have decreased by 76.6% YoY to RM3.8mn. Revenue decreased by 23.7% YoY to RM59.5mn, mainly dragged by lower sales volume and selling price of CPO and PK. CPO sales volume decreased by 13.0% YoY to 22k tonnes. The average selling price of CPO decreased by 15.4% YoY to RM2,010/tonne.

• Bulking: 1HFY19 PBT increased by more than 100% YoY to RM20.3mn, underpinned by 64.3% growth in revenue. The commendable results were driven by higher contribution from most of products segments.

• Food: 1HFY19 PBT surged by more than 100% YoY to RM10.1mn on the back of 3.3% increase in revenue. The increase in revenue was mainly due to higher sales of tuna loin.

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

Impact

• No change to our earnings forecasts.

Outlook

• Despite lower contribution from the plantation division, we see some improvement in the manufacturing division.

• Meanwhile, for the bulking division, 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 DDM valuation at RM1.89/share. The TP implies a forward CY19 PER of 14.7x. We continue to like KFIMA for its decent dividend yield (6.0%) and healthy balance sheet. Maintain BUY.

Source: TA Research - 28 Nov 2018