INVESTMENT MERIT

- Better than expected 1H13 result. Yee Lee Corporation’s (“YEELEE”) 1H13 net profit of RM17.0m is better than expected as it made up 58% of our FY13 full year forecast (RM29.4m). PBT margin in trading division came in better than expected at 3.0% in 1H13 but we think this could normalize in 2H13 due to the expected inflationary pressure in the local enonomy.

- Good earnings from manufacturing division. The division’s 1H13 PBT jumped 80% YoY to RM11.8m due to better olein margins over crude palm oil (“CPO”) prices. Higher sales of aerosol cans also contributed positively to the improved earnings.

- Trading division is the star performer as its 1H13 PBT surged 340% YoY to RM6.5m. We gather this was contributed by higher sales of bottled water and other products portfolio with better profit margins.

- FY13E earnings unchanged at RM29.4m. Despite the better than expected result in 1H13, we maintain our FY13E earnings at this juncture. We believe 2H13 outlook could be slightly challenging due to slight inflationary pressure. Still, FY13E earnings growth is expected to be very good at 33% YoY.

- Benefited from Spritzer earnings growth too as its share of profit from this associate increased 263% YoY to RM2.2m. Note that Yee Lee owns 32% of Spritzer.

- Still undervalued, maintain Trading Buy with unchanged TP of RM1.50 based on Fwd. PE of 9x on its FY13E EPS of 16.7 sen. Our 9x Fwd. PE is in line with current small cap Fwd. PE. Despite strong FY13E earnings growth prospect of 33%, it is still trading at only 9.2x Historical PE (against industry average of 12.7x) and well below its Book Value of RM1.74.

SWOT ANALYSIS

- Strength: Strong earnings track record with no losses recorded since listing.

- Weaknesses: Margin dependent on volatile CPO and other vegetable oil prices.

- Opportunities: Turnaround in its trading division should enhance overall profit in the long run.

- Threats: Low entry barrier for the cooking oil business.

TECHNICALS

- Resistance: RM1.23 (R1), RM1.30 (R2)

- Support: RM1.00 (S1), RM0.87 (S2)

- Comments: Having recently declined to a low of RM1.01, YEELEE is showing signs of an imminent rebound. The key indicators such as the Stochastic and RSI have hooked upwards from oversold levels, and we believe that the share price could potentially claw its way back to RM1.23 and RM1.30 next.

Source: Kenanga