Investment Highlights

• We maintain HOLD on Chin Teck Plantations (CTP) with an unchanged fair value of RM7.55/share, based on a FY24F PE of 10x. We ascribe a 3-star ESG rating to CTP.

• We analyse CTP’s EV/ha (enterprise value) in this report. We stripped out CTP’s cash, investments in quoted shares and investments in associates from its market capitalisation and divided the value over the group’s planted areas of 10,960ha (excluding the acquisition of Fauzi-Lim Plantation).

• We estimate CTP’s EV to be RM2,205/ha. This is low compared to Kim Loong Resources’ RM92,845/ha and Hap Seng Plantation’s RM26,783/ha. We believe that the market price of a prime oil palm estate ranges from RM80,000/ha to RM100,000/ha currently. Prices of the land can be higher than these levels if it has any property or solar development potential.

• We attribute CTP’s low EV/ha to the unexciting location of some of its oil palm estates and age profile of the trees. 14% of CTP’s planted areas are in Gua Musang, Kelantan, which does not have property development potential. A larger 72% of CTP’s oil palm estates are in Rompin, Pahang while the balance 14% are in Port Dickson.

• We believe that the average age of CTP’s oil palm trees is 13 to 15 years old. About 32% of CTP’s planted areas are more than 15 years old. An additional 28% of CTP’s oil palm trees are from 11 to 15 years old. 22% of the group’s planted areas are below 6 years old while the balance 18% are between 6-10 years old.

• We reckon that it will take time to reduce the average age of CTP’s planted areas. Currently, CTP is carrying out replanting of 500ha-600ha of oil palm trees per year. This represents 5% of CTP’s planted areas.

• In the meantime, we forecast CTP’s net profit to fall by 46% to RM58mil in FY23E. Lower palm prices together with higher costs of production and expenses from the acquisition of Fauzi-Lim Plantation are expected to affect the group’s earnings in FY23E. We forecast net profit to improve by 19% to RM69mil in FY24F in the absence of acquisition expenses and higher FFB production.

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

Source: AmInvest Research - 18 Sept 2023