Khind Holdings : Khind Holdings forges ahead with overseas expansion Yong Tai : Yong Tai: No links with SVI, they’re not our major shareholder Karex : Long gestation for Karex investment in own brand ATS : ATS eyes auto equipment deal

SECTOR FOCUS OF THE DAY

Plantation Sector : 1Q2017 Earnings Review         NEUTRAL

Half of sector results were in line with expectations. About half of the results of plantation companies were within our expectations in 1Q2017 while the balance four fell short. These were Genting Plantations (GenP), IJM Plantations (IJMP), Felda Global Ventures (FGV) and Sime Darby. Recall that IJMP was affected by a high effective tax rate and fair value loss on plasma receivables in 1Q2017 while FGV's sugar division swung into losses on higher cost of raw sugar imports. FGV was also affected by impairments and provisions amounting to RM62mil. Sime Darby's industrial and property earnings were weak. GenP's margins were squeezed by sales of CPO to its downstream unit. The CPO was kept as inventory and not sold. 

FFB production rebounded YoY in 1Q2017 after being affected by El Nino in 1Q2016. All of the plantation companies in our stock universe recorded increases in FFB production of 17.2% to 30.5% YoY in 1Q2017. Exceptions were FGV, which registered a small growth of only 2.9% and TSH Resources, which chalked up a 9.5% YoY expansion in FFB output in 1Q2017. Average realised CPO price climbed by more than 30% YoY in 1Q2017. Plantation companies under our coverage recorded average CPO prices of RM2,985/tonne to RM3,118/tonne in 1Q2017 compared with the average MPOB spot price of RM2,404/tonne in 1Q2016.

Recovery in FFB production to drive sector profitability in 2017F. Assuming that average CPO price is flat or lower YoY in 2017F (2016 average CPO price: RM2,640/tonne), we believe that net profit of plantation companies would be driven by a recovery in palm oil production. Based on the numbers in 1Q2017, we reckon that plantation companies are on track towards achieving FFB production growth of more than 10% in 2017F.

QUICK TAKE

Plantation Sector : News flow for week 29 May – 2 June              NEUTRAL

STOCKS ON RADAR

My E.G. Services, George Kent, Malton, FACB Industries Incorporated

ECONOMIC HIGHLIGHT

US : Reiterate 85% chance rate hike in June

NEWS HIGHLIGHTS

Khind Holdings : Khind Holdings forges ahead with overseas expansion

Yong Tai : Yong Tai: No links with SVI, they’re not our major shareholder

Karex : Long gestation for Karex investment in own brand

ATS : ATS eyes auto equipment deal

DISCLAIMER:

The information and opinions in this report were prepared by AmInvestment Bank Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmInvestment Bank Bhd. Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmBank Group Bhd and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgment as of this date and are subject to change without notice.