Investment Highlights

• We maintain HOLD on Chin Teck Plantations (CTP) with a lower Fair Value of RM7.55/share Vs. RM9.80/share previously. Our fair value for CTP is based on a FY23F PE of 10x compared to 13x. We have reduced our PE assumption as the simple average FY23F PE of the small cap planters has declined to 10x from 13x. We ascribe a 3- star ESG rating to CTP.
• Recently, CTP proposed to acquire Fauzi-Lim Plantation (FLP) for RM45mil from MWE Holdings. FLP has a lease for 2,023ha of oil palm estates in Gua Musang, Kelantan from Yayasan Islam Kelantan. The tenure of the lease is from 28 July 1999 to 27 July 2065 with an option for another 33 years. The proposed acquisition is expected to be completed by 31 December 2022. The proposed acquisition is conditional upon MWE obtaining approval from Yayasan Islam Kelantan.
• We are neutral on this development. We do not expect earnings contribution from the new landbank to be significant. We believe that FLP’s production costs are high due to low FFB yields. FFB production were only 3,250 tonnes in FYE3/22 with the age of oil palm trees between 21 and 22 years old. FLP recorded a net loss of RM0.7mil in FYE3/21.

• We reckon that it would take time for CTP to rehabilitate FLP’s estates. The proposed acquisition of FLP will expand CTP’s planted areas by 17% to 12,822ha. However as the land is leased from Yayasan Islam Kelantan, CTP will not own the oil palm estates.

• The amount of lease payments to Yayasan Islam Kelantan depends on CPO prices. If average CPO price per year exceeds RM3,500/tonne, the lease payment is RM300/acre and 3% on any addition to the price of RM3,500/tonne. The lease payment was RM1.5mil in FYE3/22. Based on the MPOB average price of RM5,600/tonne from April to August 2022, we estimate the lease payment to be RM1.8mil for FYE3/23F.

• The proposed acquisition price of RM45mil translates into RM24,168/ha based on FLP’s planted areas of 1,862ha. We think that the purchase price is low compared to oil palm estates in Sabah or Johor as the land will be leased from another party. Also, the oil palm trees are ageing. The net book value of CTP’s oil palm trees in Gua Musang, Kelantan was RM13,519/ha as at end August 2021. CTP has 1,618ha of oil palm trees in Gua Musang.

• The market price of a brownfield oil palm estate is about RM60,000/ha to RM80,000/ha. However, oil palm estates with property development or solar potential can command selling prices of more than RM100,000/ha.

Source: AmInvest Research - 20 Sept 2022