ORIENT (4006) : Oriental Holdings - Forex gain from yen debt
Target RM7.44 (Stock Rating: HOLD)
At 85% of our full-year forecast, Oriental’s 9M14 core net profit was above expectation. The outperformance came mainly from stronger-than-expected plantations earnings. No dividend was declared, as expected. We raise our FY14-16 EPS by 12-13% to account for stronger FFB output growth. This leads to a higher target price of RM7.44, still based on its 5-year historical average P/BV of 0.9x. Although Oriental appears undervalued, we maintain our Hold rating due to unexciting earnings growth outlook. We prefer First Resources for higher upside.
Highlights from the results
Oriental’s 3Q14 reported net profit surged 142% yoy due to recognition of a RM31m net foreign exchange gain, attributable mainly to its yen-denominated borrowings. The group had approximately RM450m yen-denominated borrowings as at end-2013 and the sharp depreciation in yen against major currencies has shrunk the debts’ value in RM. Most of the forex gain was booked under its plantations and investment segments. This partly explained the strong jump in its plantations segmental profit to RM62m in 3Q14 from a loss of RM32m last year. Excluding the impact of forex gains and losses, we estimate plantations operating profit rose about 50% yoy, probably as a result of higher palm kernel prices, stronger FFB production, and lower fertiliser cost. Its investment segment’s profit also rose 17% yoy to RM32m.
Auto and plastic divisions continue to face challenges
Automotive operating profit fell 35% yoy to RM9m despite higher units of car sold from its overseas operations. During the quarter, the group provided about RM10m as expenses for its voluntary separation scheme for the auto segment. Losses from its plastic operations narrowed to RM2.4m from RM4.4m a year ago, helped by higher demand from its electrical businesses. Hotel and resort operating profit rose 24% yoy to RM8m on the back of higher occupancy rate.
Expect weaker 4Q
We expect Oriental’s earnings to be weaker next quarter as a result of lower palm product prices. On top of that, start-up expenses from its new hospital in Malacca, which is expected to commence operation in 4Q, should drag its earnings lower. The new hospital may take up to seven years to break even.
Source: CIMB Daybreak - 21 November 2014
Target RM7.44 (Stock Rating: HOLD)
At 85% of our full-year forecast, Oriental’s 9M14 core net profit was above expectation. The outperformance came mainly from stronger-than-expected plantations earnings. No dividend was declared, as expected. We raise our FY14-16 EPS by 12-13% to account for stronger FFB output growth. This leads to a higher target price of RM7.44, still based on its 5-year historical average P/BV of 0.9x. Although Oriental appears undervalued, we maintain our Hold rating due to unexciting earnings growth outlook. We prefer First Resources for higher upside.
Highlights from the results
Oriental’s 3Q14 reported net profit surged 142% yoy due to recognition of a RM31m net foreign exchange gain, attributable mainly to its yen-denominated borrowings. The group had approximately RM450m yen-denominated borrowings as at end-2013 and the sharp depreciation in yen against major currencies has shrunk the debts’ value in RM. Most of the forex gain was booked under its plantations and investment segments. This partly explained the strong jump in its plantations segmental profit to RM62m in 3Q14 from a loss of RM32m last year. Excluding the impact of forex gains and losses, we estimate plantations operating profit rose about 50% yoy, probably as a result of higher palm kernel prices, stronger FFB production, and lower fertiliser cost. Its investment segment’s profit also rose 17% yoy to RM32m.
Auto and plastic divisions continue to face challenges
Automotive operating profit fell 35% yoy to RM9m despite higher units of car sold from its overseas operations. During the quarter, the group provided about RM10m as expenses for its voluntary separation scheme for the auto segment. Losses from its plastic operations narrowed to RM2.4m from RM4.4m a year ago, helped by higher demand from its electrical businesses. Hotel and resort operating profit rose 24% yoy to RM8m on the back of higher occupancy rate.
Expect weaker 4Q
We expect Oriental’s earnings to be weaker next quarter as a result of lower palm product prices. On top of that, start-up expenses from its new hospital in Malacca, which is expected to commence operation in 4Q, should drag its earnings lower. The new hospital may take up to seven years to break even.
Source: CIMB Daybreak - 21 November 2014
