Batu Kawan Bhd
(Feb 18, RM18.24)
Maintain hold call with an unchanged target price (TP) of RM17.80. We retain our financial year ending Sept 30, 2015 (FY15) and FY16 net earnings forecast. 

Hence, maintaining our TP based on an unchanged price-to-earnings ratio of 12 times over FY15 earnings per share estimates.

Batu Kawan’s first financial quarter ended Dec 31, 2014 (1QFY15) net profit of RM117 million came in within expectations, making up 20% of our full-year estimates. 

Its 1QFY15 net profit came down by 25% vis-à-vis 1QFY14 of RM157 million and lower net margins from 6% to 4%. 

This was largely attributed to its lower plantation profit (-6.2% year-on-year, [y-o-y]) caused by weaker crude palm oil (CPO) and rubber prices averaging at RM2,138 per tonne (-6.7% y-o-y) and RM6.6 per kg (-24.2% y-o-y) and reduced crops for both CPO and rubber. 

Its manufacturing division also dipped by 55% y-o-y as the weak oil price affected the fatty alcohol and surfactant businesses.

However, quarter-on-quarter (q-o-q) net profit improved by 29%, thanks to contributions from its manufacturing division. 

Margins from the manufacturing division were seen to increase from 0.8% to 3.1% q-o-q. — BIMB Research, Feb 17

This article first appeared in The Edge Financial Daily, on February 23, 2015.