Investment Highlights

• We maintain HOLD on Chin Teck Plantations (CTP) with an unchanged fair value of RM7.55/share, on FY24F PE of 10x, which is the simple average PE of small cap plantation companies over the past 5 years. We ascribe a neutral 3-star ESG rating to CTP.

• CTP’s 9MFY23 results were within our forecast. The group has declared a special and interim gross DPS, which amounts to 10 sen, for 3QFY23. This brings gross DPS to 20 sen for 9MFY23 (9MFY22: 42 sen). The 52.4% YoY drop in interim dividends in 9MFY23 is in line with the 52.7% fall in CTP’s net profit.

• CTP’s net profit plunged by 52.7% YoY to RM39.7mil in 9MFY23, dragged by lower palm product prices, higher fertiliser costs and increased administrative expenses. As a result, CTP’s gross profit margin slid to 43.6% in 9MFY23 from 56% in 9MFY22.

• Average realised CPO price declined by 22.3% to RM4,028/tonne in 9MFY23 from RM5,184/tonne in 9MFY22. On a positive note, FFB production climbed by 16% YoY in 9MFY23 as FFB yields rebounded.

• Administrative expenses surged by 38.1% YoY to RM25.9mil in 9MFY23 due to the acquisition of Fauzi-Lim Plantation. Recall that the RM45mil acquisition of FauziLim Plantation was completed in January 2023. Fauzi-Lim owns 2,023ha of oil palm estates in Gua Musang, Kelantan.

• Also, CTP recognised a smaller share of net profit in associates of RM0.3mil in 9MFY23 compared with RM6.5mil in 9MFY22. This was attributed to the disruption in harvesting activities in Indonesia resulting from the unrest in neighbouring estates.

• Comparing 3QFY23 against 2QFY23, CTP’s net profit climbed almost 3-fold to RM11.4mil, driven mainly by a lower effective tax rate. The effective tax rate declined to 16.9% in 3QFY23 from 45.8% in 2QFY23 due to higher tax deductible expenses.

• Average realised CPO price inched up to RM4,080/tonne in 3QFY23 from RM3,965/tonne in 2QFY23. On the other hand, FFB production plunged by 20.4% QoQ to 37,992 tonnes in 3QFY23.

• CTP is currently trading at a FY24F PE of 10x, which is in line with its 2-year average.

Source: AmInvest Research - 31 Jul 2023