BIMB SECURITIES RESEARCH

MARKET INSIGHT
PP16795/03/2013(031743)

Friday, 25 May, 2012

Result Review

Batu Kawan
Inline
Stock Data
Bloomberg Ticker Market Cap (RM'mn) Issued shares (mn) 52-week high 52-week low 3-mth avg daily volume ('00) Free Float Shariah Compliant BAK MK 7,804 436 20.00 14.10 444 36.39 Y Altman Z-score 66.35 YTD price chg 2.52 YTD KLCI chg 1.14 Beta 0.79 Major Shareholders Wan Hin Inv. 45.29% FELDA 6.28% Yeoh Chin Hin Inv. 3.51% 1mth (4.79) (2.69) 2011 275.5 783.7 785.4 779.5 186.50 95.00 5.31 8.74 9.60 2012E 356.1 654.3 655.4 628.5 144.17 90.00 5.03 8.90 12.42 3mth (3.56) (2.90) 2013E 417.8 759.5 763.1 730.3 167.52 95.00 5.31 9.63 10.69 12mth 16.20 9.34 2014E 476.1 811.5 818.7 781.4 179.24 100.00 5.59 10.42 9.99

Buy
Price: Target Price: RM17.90 (+10.6%)RM19.80
Revenue increased 19.0% to RM83.1m mainly attributed by the Plantation and Chemicals divisions. Aligned with revenue growth, operating income rose 8.0% to RM18.2m in 2QFY12. The lower growth rate is mainly due to higher operation costs in the Chemicals division. Despite that the operating results were largely within expectation, the Groups performance was affected by the lower contribution from KLK. Reduced our target price to RM19.80 on lower KLK valuation. Maintain BUY. Significant increase in plantation revenue. Batu Kawans revenue increased 19.0% y-o-y to RM83.1m for the st quarter ended 31 March 2012. The improvement was mainly attributed by the Plantation and Chemicals divisions. Aligned with higher revenue, operating income rose 8.0% to RM18.2m. However, operating margin declined to 22.0% from 24.2% due to higher production costs in the Chemicals division. Affected by KLK. Though Batu Kawans operating profit was satisfying, its net result was affected by lower contribution from the plantation associate, Kuala Lumpur Kepong (KLK). KLKs net income plunged more than 40.0% in 2QFY12 due to lower commodities selling prices, rising production costs, and lower margins at the oleo-chemical division. Revenue and operation inline, but Batu Kawans operating performance was largely within expectation. However, the lower than expected profit margins achieved by KLK caused its net income fall short of our expectation. 15 sen dividend. The Group has declared an interim single tier dividend of 15 sen per share for FY12 which will be th paid on 10 August 2012. The stock will trade ex-dividend th on 12 July 2012. View and Valuation. We maintained Batu Kawans revenue and operating profit forecast but cut its net profit estimates due to lower earnings estimates on KLK. Net profit estimates reduced by 13.1% and 7.6% for FY12 and FY13 respectively. Revised downward our target price to RM19.80 from RM20.40 previously. The target price was derived based on sum of part methodology applying 7x PER on its core operating income and 10 years average discount of approximately 35% to its KLKs holdings. Maintain BUY.

Lower valuation on KLK

Share Performance (%)

Absolute vs. KLCI

Financial Highlights
FYE 30 Sep Turnover EBIT Pretax profit Net Profit EPS (sen) Gross DPS (sen) Div Yield (%) NTA/share (RM) PE Ratio EBIT Margin Pretax Margin Effective tax rate ROE ROA Net Gearing (x) 2010 218.2 571.6 572.5 567.5 134.20 65.00 3.63 7.41 13.34

261.98% 284.48% 183.77% 181.79% 170.46% 262.39% 285.07% 184.08% 182.65% 171.98% 0.58% N/A 2.65% 2.84% 3.11% 18.45% 22.52% 16.45% 17.97% 17.78% 18.02% 22.02% 15.98% 17.33% 17.17% N. Cash N. Cash N. Cash N. Cash N. Cash -6.76% 62.87% 63.24% 68.21% 26.27% 29.24% 37.11% -16.51% 37.18% -16.54% 37.36% -19.37% 17.33% 16.06% 16.42% 16.20% 13.96% 6.86% 7.30% 7.00%

Growth Ratios
Turnover EBIT Pretax profit Net profit

Share Price Chart

20.3 19.3 18.3 17.3 16.3 15.3 14.3 13.3

Jun-11

Jul-11

May-11

Aug-11

Nov-11

Ng Keat Yung nkyung@bimbsec.com.my 03-26918887 ext 181

Mar-12

Dec-11

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Feb-12

Apr-12

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25 May 2012

Results Review: Batu Kawan 2QFY12

Quarterly figures
FYE 30 Sep (RM'm) Revenue EBIT Pretax profit Taxation Minority interest Net Profit EPS (sen) Net gearing (x) EBIT margin (%) PBT margin (%) Net margin (%) Effective tax rate (%) Mar-11 69.8 191.0 190.6 -3.9 -2.1 184.7 44.12 N. Cash 273.69 273.12 264.65 2.02 Jun-11 72.9 215.0 214.8 -2.6 -1.7 210.5 50.33 N. Cash 294.81 294.52 288.64 1.19 Sep-11 74.3 229.4 229.0 10.8 -3.8 236.0 56.44 N. Cash 308.94 308.46 317.78 -4.70 Dec-11 84.3 173.3 173.0 -3.5 -1.2 168.2 40.34 N. Cash 205.66 205.22 199.55 2.05 Mar-12 QoQ Chg YoY Chg 83.1 -1.5% 19.0% 118.3 -31.7% -38.1% 118.0 -31.8% -38.1% -4.4 23.1% 13.0% -1.5 24.4% -25.2% 112.1 -33.4% -39.3% 26.88 -33.4% -39.1% N. Cash N/A N/A 142.44 -30.7% -48.0% 142.02 -30.8% -48.0% 134.93 -32.4% -49.0% 3.69 80.5% 82.5% 1HFY11 135.9 342.2 341.5 -6.2 -2.3 333.0 79.5 N. Cash 251.74 251.20 244.93 1.83 1HFY12 167.3 291.6 290.9 -7.9 -2.8 280.2 67.2 N. Cash 174.28 173.85 167.48 2.71 YTD Chg 23.1 -14.8 -14.8 26.6 21.0 -15.8 -15.5 N/A -30.8 -30.8 -31.6 48.7

Source: BIMB Securities

Income Statement
FYE 30 Sep (RM'm) Revenue EBITDA Pretax profit Tax MI Net profit Net profit growth (%) EPS (sen) EPS growth (%) Gross DPS (sen) Dividend yield (%) NTA/share (RM) Net gearing (x) PER (x) P / NTA (x) ROE (%) ROA (%) 2009 234.0 41.1 350.7 -9.0 -4.3 337.3 -33.3 79.2 -32.5 40.0 2.23 6.79 N. Cash 22.60 2.64 11.50 11.26 2010 218.2 115.4 572.5 -3.3 -1.7 567.5 68.2 134.2 69.4 65.0 3.63 7.41 N. Cash 13.34 2.42 18.45 18.02 2011 275.5 71.0 785.4 2.0 -7.9 779.5 37.4 186.5 39.0 95.0 5.31 8.74 N. Cash 9.60 2.05 22.52 22.02 2012E 356.1 109.9 655.4 -17.3 -9.6 628.5 -19.4 144.2 -22.7 90.0 5.03 8.90 N. Cash 12.42 2.01 16.45 15.98 2013E 417.8 135.5 763.1 -21.6 -11.1 730.3 16.2 167.5 16.2 95.0 5.31 9.63 N. Cash 10.69 1.86 17.97 17.33 2014E 476.1 160.0 818.7 -25.4 -11.9 781.4 7.0 179.2 7.0 100.0 5.59 10.42 N. Cash 9.99 1.72 17.78 17.17

Source: BIMB Securities

Balance Sheet
FYE 30 Sep (RM'm) Current assets Non-current assets Total Assets Current liabilities Non-current liabilities Shareholders' fund Minority interest Equity & liabilities 2009 278.4 2,757.7 3,036.1 29.3 45.1 2,902.2 59.4 3,036.1 2010 291.4 2,970.0 3,261.3 36.2 36.1 3,130.6 58.4 3,261.3 2011 264.5 3,552.2 3,816.7 48.3 34.5 3,669.7 64.2 3,816.7 2012E 423.9 3,627.3 4,051.1 51.0 26.5 3,905.9 67.7 4,051.1 2013E 659.3 3,715.8 4,375.2 53.7 26.9 4,222.0 72.5 4,375.2 2014E 907.6 3,821.3 4,728.9 56.3 27.4 4,567.4 77.8 4,728.9

Source: BIMB Securities

www.bimbsec.com.my

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25 May 2012
DEFINITION OF RATINGS BIMB Securities uses the following rating system:

Results Review: Batu Kawan 2QFY12

STOCK RECOMMENDATION BUY Total return (price appreciation plus dividend yield) is expected to exceed 10% in the next 12 months OUTPERFORM The stock is expected to perform ahead of the market in the next 12 months TRADING BUY The stock is expected to outperform the market in the next 3 months NEUTRAL The stock is expected to perform in line with the market in the next 12 months TRADING SELL The stock is expected to underperform the market in the next 3 months SELL An expected price depreciation of more than 10% in the next 12 months SECTOR RECOMMENDATION OVERWEIGHT The Industry as defined by the analysts coverage universe, is expected to outperform the relevant primary market index over the next 12 months NEUTRAL The Industry as defined by the analysts coverage universe, is expected to perform in line with the relevant primary market index over the next 12 months UNDERWEIGHT The Industry as defined by the analysts coverage universe, is expected to underperform the relevant primary market index over the next 12 months Applicability of ratings The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies. Disclaimer The investments discussed or recommended in this report 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 BIMB Securities SdnBhd may from time to time have a position in or either the securities mentioned herein. Members of the BIMB Group 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 judgements as of this and are subject to change without notice. BIMB Securities SdnBhd accepts no liability for any direct, indirect or consequential loss arising from use of this report.

Published by

BIMB SECURITIES SDN BHD (290163-X) A Participating Organisation of Bursa Malaysia Securities Berhad Level 32, Menara Multi Purpose, Capital Square, No. 8 Jalan Munshi Abdullah, 50100 Kuala Lumpur Tel: 03-2691 8887, Fax: 03-2691 1262 http://www.bimbsec.com.my

Kenny Yee Head of Research

www.bimbsec.com.my

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