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 in Malaysia. We ascribe a 3-star ESG rating to CTP.

• CTP’s 1QFY23 net profit was within our forecast. We believe that a weaker CPO price and higher cost of production would affect CTP’s profitability in the coming quarters.

• CTP’s net profit fell by 8% YoY to RM25mil in 1QFY23 dragged by a lower CPO price together with higher costs of fertiliser and wages.

• Average realised CPO price slipped by 7% to RM4,036/tonne in 1QFY23 from RM4,354/tonne in 1QFY22. On a positive note, CTP’s FFB production surged by34.2% YoY in 1QFY23. We believe that this is not sustainable. We expect CTP’s FFB output growth to moderate in the coming quarters due to heavy rains and lower yields.

• CTP’s gross profit margin slid to 51.9% in 1QFY23 from 57.2% in 1QFY22. We think that CTP’s cost of production (gross profit level) would rise to RM2,800/tonne (gross profit level) in FY23F from RM2,571/tonne in FY22.

• Comparing 1QFY23 against 4QFY22, CTP’s net profit rose by 7% to RM25mil due to a lower effective tax rate. CTP’s effective tax rate dropped to 19.2% in 1QFY23 from 27.3% in 4QFY22 due to non-taxable income.

• Average CPO price declined by 25% to RM4,036/tonne in 1QFY23 from RM5,345/tonne in 4QFY22. FFB production climbed by 28% QoQ in 1QFY23 in line with the peak production period.

• CTP’s balance sheet is healthy. The group was in a net cash position of RM412mil as at end-November vs. RM395mil as at end-August 2022. CTP has zero borrowings.

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

Source: AmInvest Research - 31 Jan 2023