Review

• Kumpulan Fima Berhad (KFIMA)’s 9MFY20 results came in within expectation. Excluding the unrealised forex gains and other non-core items, 9MFY20 core net profit increased by 12.5% YoY to RM30.6mn. The improvement was mainly due to better product mix.

• Manufacturing: 9MFY20 PBT decreased by 29.0% YoY to RM17.4mn on the back of lower revenue and higher inventories written down.

• Plantation: 9MFY20 revenue increased by 2.5% YoY to RM82.8mn as a result of higher CPO production and prices. CPO sales volume increased by 9.9% YoY to 30k tonnes. The average selling price of CPO increased to RM2,003/tonne (+2.0% YoY). However, this division registered a LBT of RM4.7mn compared to a core PBT of RM9.2mn (exluded a write back of RM23.6mn), dragged by lower yield, higher operational cost and no CPKO sales for the first 3 quarters.

• Bulking: Despite higher revenue, 9MFY20 PBT decreased by 14.5% YoY to RM27.9mn, mainly dragged by losses of biodiesel segment, which is in the process of optimising its biodiesel plant.

• Food: This segment recorded a PBT of RM12.0mn in 9MFY20 (+34.4% YoY), backed by higher sales volume of tuna and mackerel products.

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

Impact

• No change to our earnings forecast.

Outlook

• Management expects the Covic-19 to have some impact on the group operations and is currently assessing, monitoring and mitigating the impact on the outbreak and develop necessary action plans.

• Meanwhile, we expect a weak 4Q due to lower contribution from the manufacturing, plantation and food division. We see some risk in the bulking business in the coming quarters as the Covid-19 outbreak may result in lower throughput across most product segments.

Valuation

• We increase our cost of equity from 8.6% to 9.5%. As such, our DDM-driven TP of KFIMA has been adjusted lower to RM1.55 (previously RM1.83). We do not see much catalyst to drive KFIMA’ share price ahead and expect the group’s performance to remain weak in the coming quarters. As such, we are ceasing our coverage on KFIMA.

Source: TA Research - 2 Mar 2020