Results

4QFY12 core net profit of RM101.8m (+30.7% qoq and +188.4% yoy) took FY to RM314.5m (-12.4% yoy) or 103.7% of HLIB (in line) but 90.5% consensus forecasts (below expectations).

Deviations

Largely in line.

Dividend

Fourth interim single-tier dividend of 7.5 sen (vs. 9 sen). Ex and payment dates are 14 and 29 Mar respectively. Total of 32.5 sen is higher than our FY12 projection of 24 sen.

Highlights

Revenue growth was intact and contributed by all divisions, except for the plantation division (affected by lower production and average CPO price).

4Q EBIT deteriorated sequentially mainly due to BHIC (impairment on tankers and cost escalation of commercial shipbuilding but partly offset by MHS and BNS) and one-off provision by Pharmaniaga. However, it slightly was higher yoy. Net profit helped by exceptionally low tax rate.

As for FY12, higher contributions from Affin, Pharmaniaga, property, manufacturing & trading as well as MHS and BNS (of the heavy industry division) were more than offset by plantation and BHIC.

Management introduced FY13 KPIs with ROE of 9.5% (vs. HLIB’s projection of 8.7%), ROA of 6.5% and dividend of 30 sen (vs. HLIB’s 27.7 sen based on 70% payout mainly due to the more conservative forecasts assumptions).

Risk

Lower than expected revenue contributions from different divisions and/or margins falling short of expectations as well as relatively high gearing and potential dilution from cash call.

Forecasts

FY13 forecast raised by 0.8% but FY14 forecast cut by 10.6% after we incorporated our latest forecasts for Affin, BHIC, Pharmaniaga and post final results (other divisions).

Rating

BUY

• Positives – Still undervalued, P/E (low double-digit) and P/B not demanding, relatively high and quarterly net dividend yield, decent earnings growth and market yet to fully appreciate the hidden values.
• Negatives – Relatively high gearing and complicated group as well as quarterly fluctuation in earnings.

Valuation

Target price fine-tuned to RM6.33 vs. RM6.34 (10% discount to estimated SOP of RM7.04), subject to changes after annual report is made available.

Despite lower FY12 earnings, we expect the heavy industry division to recover on the back of the RM9bn Navy contract complemented by continued growth from other divisions (except plantation albeit still profitable). Moreover, valuations are not demanding with attractive yield of circa 5% (after the recent drop in share price) while it still has huge hidden values that are expected to be unlocked over time.

Source: Hong Leong Investment Bank Research - 26 Feb 2013