Investment Highlights

• We maintain HOLD on Chin Teck Plantations (CTP) with an unchanged fair value of RM7.55/share. Our fair value for CTP is based on a FY23F PE of 10x. This is the simple average FY23F PE of small cap plantation companies. We ascribe a neutral 3 star ESG rating to CTP.

• CTP’s FY22 net profit was within our forecast. CTP’s gross DPS amounted to 42 sen for FY22 compared with 30 sen in FY21. This is in tandem with the 58% surge in the group’s net profit. We forecast a lower gross DPS of 30 sen for FY23F, which implies a yield of 3.5% and payout of 40% (FY22: 36%).

• CTP’s turnover climbed by 42% to RM260mil in FY22 on the back of strong crude palm oil (CPO) prices. Average CPO price realised grew by 46% to RM5,226/tonne in FY22 from RM3,591/tonne in FY21.

• The surge in CPO price compensated for unexciting fresh fruit bunch (FFB) production in FY22. CTP’s FFB declined by 5.6% in FY22. We attribute the fall in FFB output in FY22 to labour shortage and wet weather in 1Q.

• Gross profit margin rose to 56% in FY22 from 55% in FY21 as robust CPO prices offset higher production costs. Like the other plantation companies, we reckon that CTP was affected by the surge in fertiliser costs.

• Comparing 4QFY22 against 3QFY22, CTP’s net profit fell by 22% to RM24mil dragged by weaker CPO prices. Average CPO price slid to RM5,345/tonne in 4QFY22 from RM6,091/tonne in 3QFY22. On a positive note, FFB production improved by 9.4% QoQ in 4QFY22 due to seasonal factors.

• CTP’s balance sheet is healthy. The group was in a net cash position of RM395mil as at end-August 2022 vs. RM357mil a year ago. CTP has zero borrowings.

• CTP is currently trading at a FY23F PE of 11x, which is close to its 2-year average of 10x.

Source: AmInvest Research - 31 Oct 2022