OFI earnings flat YoY in 2Q15 at RM4.08m

1.  Oriental Food Industries Holdings Berhad (OFI) 2Q15 EPS declined 1% to 6.81 sen as net profit slipped 1% YoY to RM4.08m. For 1H15, EPS is down 10% to 12.20 sen. Key driver behind the slight earnings decline for 2Q15 is the decline in revenue by 3% to RM54.27m due to lower demand from customers in the snack food and confectioneries (SFAC) segment. Recall that SFAC division contributed almost 100% of PBT to OFIH earnings in FY14.

2.    2.0 sen dividend declared. Ex date is 12 Dec 2014. Coupled with another 2.0 sen announced in 1Q15, total dividend declared so far is 4.0 sen. Recall that in FY14, OFIH delivered 9.5 sen dividend representing 3.2% dividend yield based on its latest share price of RM2.97 on 28-Nov-2014.

3.    Net cash position remain resilient. OFI owns RM25.9m cash, Long Term Debt RM3.0m and Short Term Debt of RM1.6m. This means net cash of RM21.3m or RM0.355 per share. As the share price is RM2.97, this means 12% of the share price is in cash.

4.  FY15 earnings growth adjusted down to flat growth (from 10% growth previously). Due to lower than expected earnings growth in 1H15 which is down 10% YoY, FY15 EPS growth is now adjusted to 0% growth. Although demand has been lower than expected as impact of high living cost has weaken consumer purchasing power, 2H15 earnings growth should recover ahead of pre-GST demand

4.  New Fair Value of RM2.92. Still on the same 11x PE on the lower EPS of 26.55 sen (from 29.21 sen), new Fair Value is only RM2.92 (5 sen lower than current Market Price of RM2.97). As a result, this stock is no longer on the BUY list. On the positive side, this stock provide regular income as it deliver dividend 3 times per year. However, low consumer demand means limited earnings growth in the next 1 year.