9MFY19 PATAMI of RM196.4m (+13%) and the absence of dividend came in within expectations. We believe the group is sailing towards a stronger FY, largely anchored by its solid marine segment which is spurred by stable fish cycle and robust surimi-based product demand. Notably, its Family Mart convenience store business is expected to be segmented out in the upcoming quarter. Post-results, maintain MP with an unchanged TP of RM8.30.

No surprises. 9MFY20 PATAMI of RM196.4m came in within expectations at 80% and 70% of our and consensus’ estimates, respectively, as 9MFY results historically takes up c.78% of full-year’s earnings. As expected, no dividend was declared. The group typically pays a single interim dividend annually; expected to be 5.5 sen for FY20.

Results review. YoY, 9MFY20 PATAMI rose 13%, largely backed by: (i) stronger PBT from Marine Product Manufacturing (MPM) segment (+27%), thanks to robust demand for surimi-based products which cushioned the weakness in fishmeal demand and price, coupled with (ii) improved performance from Integrated Livestock Farming (ILF) segment (+7%) helmed by better regional and Sabah poultry operations. These were slightly offset by a weaker Palm Oil Activities (POA) segment (-50%), which was impaired by lower FFB processed and softer average CPO prices.

QoQ, 3QFY20 PATAMI grew 9% to close at RM76.1m, premised on better contribution from (i) POA segment which registered a three-fold growth in PBT to finish at RM3.2m (from RM0.8m), great thanks to higher CPO prices as well as greater crop and FFB processed, coupled with (ii) ILF segment (+35%), similarly boosted by better regional and Sabah operations, as well as better margin from feed raw material trade. The MPM segment, however, registered flattish contribution (+0.7%) as both 3Q and 4Q contributions were buoyed by peak fishing season in Peninsular east coast.

Moving towards a stronger year. Here forth, the group’s earnings are anticipated to be largely buoyed by its MPM segment (takes up c.53% of group’s PBT), on the back of stable fish cycle and robust sales momentum especially from the frozen prawn and frozen surimi-based products. We also gathered that the segment has been largely unaffected by the recent coronavirus outbreak as the epidemic has instead spurred panic buying on food products. On the other hand, the FamilyMart convenience store business is expected to be segmented out in 4QFY20, with c.175 stores already opened to date. We believe that this segment will be an exciting avenue of growth for the group, banking on its high fresh food content which takes up c.80% of its sales. For the POA segment, better CPO prices are also expected to lift earnings in the upcoming quarters.

Post results, we made no changes to our earnings forecasts.

Maintain MARKET PERFORM at TP of RM8.30. Our valuation is based on a 50.0x FY21E PER (closely in-line with the stock’s +1.5SD over its 3-year mean PER). While valuation appears rich at this level, we believe it is fair, premised on its resilient earnings base and rosy earnings growth expectations of c.13-10%. Its pedestrian dividend yield of c.1% is not unusual for high growth stocks such as this. Comparatively, other large cap F&Bs are expected to only demonstrate c.8% earnings growth on average. Risks to our call include: (i) better/worse-than-expected MPM sales, and (ii) better/ poorer-thanexpected demand of poultry products abroad.

Source: Kenanga Research - 28 Feb 2020