KFima's 3QFY13 revenue increased marginally from RM117.4m in the previous corresponding year to RM119.5m in the current quarter (+1.8% y-o-y, -6.5% q-o-q) due to higher contributions from manufacturing and bulking divisions. Net profit rose to RM22.7m from RM14.8m y-o-y (+54.1% y-o-y, +19.4% q-o-q) with YTD earnings +11.4% despite declining CPO prices, and unexpectedly lower sales from the food division. The group‟s YTD performance has achieved 82% and 75% respectively of our FY13F revenue and net profit estimates which we assume would meet our full year forecast reaffirming our Outperform recommendation and TP of RM3.21.

Manufacturing and bulking flourish. KFima‟s first and third largest revenue and earnings contributors (manufacturing - +6.0% y-o-y PBT, bulking - +31.1% y-o-y PBT) are sustaining the group‟s top-line performance as i.) manufacturing volume increases, but average margin is reduced due to different product mix‟s margin yields, ii.) higher throughput from increased utilisation (current utilisation – 80%) of tanks for mainly edible oil and base oil products with extra capacity from the new storage tanks slated to be completed by FY14. Storage utilisation rate is expected to be maintained at current levels.

CPO prices and unrealised FX losses. The plantation division is expected to underperform this year (-50.1% y-o-y PBT) attributable to lower sales volume and lower CPO prices. YTD FY13 CPO sales is 31,979mt (RM2,208) vs 30,600mt (RM2,496) in FY12, coupled with higher fertilizer and upkeep costs. For the food division, unrealised foreign exchange losses is compressing the division‟s margins (-20.9%), underpinned by the challenging economic and business environment and rising costs. KFima, in this segment, will continue to focus on sustaining profitable growth, optimising resource, prudent cost management and enhancing operational efficiencies.

UNDERVALUED. We believe the group remains undervalued considering they are i.) in-line with our revenue and earnings expectations, ii.) hold a healthy cash pile exceeding RM200m for acquisition and/or expansion purposes, and iii.) trading at low PE level of 6x forward PE multiple for a 5 core segment business.

Source: PublicInvest Research - 27 Feb 2013