Stripping out i) share of loss in investments (RM31.1m), ii) insurance income (RM32.1m), iii) foreign exchange (FX) losses (RM14.9m) and iv) minority interest (RM26.9m), the group registered core earnings of RM331.3m for 9MFY24, accounting for 73% and 74% of our and the street full-year expectations, respectively. The 9MFY24 average EAF for Don Sahong Hydropower Plant was lower at 87.6% (vs 9MFY23: 89.4%), following the commissioning of 5th turbine. Key re-rating catalysts include i) more favourable power purchase agreement, which is being finalised and ii) stronger earnings growth from the 40%-owned modern farming business. Maintain Outperform with an unchanged SOP-based TP of RM5.36. No dividend was declared for the quarter.

• 3QFY24 revenue (QoQ: +12.1%, YoY: +16.1%). The group's revenue grew 16.1% YoY to RM372m, spurred by stronger sales from renewable energy (+12% YoY) and resources (+24.8% YoY) while the Food Security segment made a contribution of RM20.8m. Packaging sales remained solid at RM98m. The increase in renewable energy sales to RM183.9m were mainly driven by hydro energy sales (+12% YoY to RM181.5m) and also an increase in solar energy sales (+6.1% YoY to RM2.4m) as well as an expanded Equivalent Availability Factor (EAF) of 92.5% following the commissioning of 5th turbine. Resources sales rose from RM48.3m to RM60.3m, led by higher sales volume of lime products with robust demand from both Malaysian and regional markets as well as non-lime products (+4.3% YoY). Despite the weak consumer demand and excess capacity, the packaging sales remained solid at RM98.2m.
• Record quarterly earnings. Excluding the i) share of loss in equity accounted investments (RM7.7m), ii) insurance income (RM7.2m) and iii) FX losses (RM18.4m), the group's core earnings advanced 28.2% YoY to RM135.3m for 3QFY24, mainly contributed by renewable energy (+6.3% YoY) and a double in resources earnings despite weaker packaging earnings. Renewable Energy earnings rose from RM122.8m to RM130.5m as higher interest expense and maintenance expenses for the 5th turbine were offset by the additional core profit recognised from Don Sahong Hydropower Plant following the increase in effective stake from 80% to 95%. Resources earnings doubled to RM13.6m, attributed to productivity gains and a favourable shift in the sales mix. Packaging earnings slipped 25.7% YoY to RM7.5m due to margin pressures arising from intense price competition and the impact of a stronger Ringgit, which had eroded the division's export competitiveness.
• Oleochemical business continued to struggle. The JV-owned oleochemical business, Edenor, remained in the red with a loss of RM7.7m as the plant faced significant capacity loss due to highly disruptive intermittent repairs and upgrade works. Cumulatively, it had incurred RM31.1m loss compared to 9MFY23's RM9.7m. On a positive note, management believes that it is nearing the completion of its rectification efforts and expects earnings recovery in 2025.

Source: PublicInvest Research - 22 Nov 2024