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. We ascribe a 3- star ESG rating to CTP.
• Recently, CTP announced that the proposed acquisition of Fauzi-Lim Plantation has become unconditional. The proposed acquisition is expected to be completed by 31 January 2023.

• We reiterate our view that the proposed acquisition is not expected to contribute significantly to CTP’s FY23F net profit.

• This is due to the small size of Fauzi-Lim’s oil palm estates of only 2,023ha. The estates produced 3,250 tonnes of FFB in FYE3/22. This is 1.8% of CTP’s FFB production in FYE8/22. The estates are located in Gua Musang, Kelantan.

• Also, the acquired estates are unlikely to be profitable in FY23F due to low FFB yields and high costs of production. The cost of production for plantation companies is expected to increase by 20% to 30% in 2023F due to rising costs of wages and fertiliser.

• CTP will be making lease payments to Yayasan Islam Kelantan upon the completion of the acquisition. Based on current CPO prices, we estimate the lease payments to be RM1.5mil on a full-year basis. Fauzi-Lim Plantation does not own the estates. Instead, it leases the estates from Yayasan Islam Kelantan.

• CTP is not expected to face problems financing the RM45mil acquisition. The group’s cash reserves stood at RM395.1mil as at end-August 2022

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

Source: AmInvest Research - 22 Dec 2022