Review

• Excluding the RM23.6mn write-back of impairment loss on PPE, unrealised forex and other non-core items, 9MFY19 core net profit declined by 16.0% YoY to RM27.8mn, accounting for 82% of our full-year earnings estimates. We deem the result broadly in-line as we expect a weak 4QFY19 due to shorter working days and weaker plantation segment.

• Manufacturing: Despite lower revenue (-5.4% YOY), 9MFY19 PBT increased by 32.1% YoY to RM25.3mn. 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 for 9MFY19 as a result of RM23.6mn write-back of impairment loss on PPE. Excluding the write-back, PBT would have decreased by 59.3% YoY to RM9.2mn. Revenue decreased by 26.9% YoY to RM80.8mn, mainly dragged by lower sales volume and selling price of CPO and PK. CPO sales volume decreased by 17.3% YoY to 30k tonnes. The average selling price of CPO decreased by 14.3% YoY to RM1,964/tonne.

• Bulking: 9MFY19 PBT doubled YoY to RM33.7mn, underpinned by 58.9% growth in revenue. The commendable results were driven by higher contribution from most of products segments.

• Food: 9MFY19 PBT surged by more than 100% YoY to RM8.9mn despite 2.6% fall in revenue. This is because forex gain of RM2.7mn have lifted the division’s PBT.

• 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 (5.5%) and strong balance sheet. Maintain BUY.

Source: TA Research - 28 Feb 2019