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, which is the simple average PE of small cap plantation companies in the past 5 years. We ascribe a neutral 3-star ESG rating to CTP.

• CTP’s FY23 net profit was in line with our forecast. CTP’s FY23 net profit dived by 50.4% to RM53.4mil, dragged by weaker palm product prices, higher costs of CPO production and increased administrative expenses.

• Average CPO price slid by 23.7% to RM3,985/tonne in FY23 from RM5,226/tonne in FY22. FFB production, however, grew by 11.7% to 197,596 tonnes in FY23 as FFB yields recovered and CTP acquired Fauzi-Lim Plantation.

• Administrative expenses rose 32.9% to RM33.5mil in FY23 due to the acquisition of Fauzi-Lim Plantation, which was completed in January 2023. Fauzi-Lim owns 2,023ha of estates in Gua Musang, Kelantan.

• Share of net profit in associates swung to a loss of RM6mil in FY23 from a positive RM5.9mil in FY22. Harvesting activities in Indonesia were disrupted in FY23 due to unrest in neighbouring estates.

• Comparing 4QFY23 against 3QFY23, CTP’s net profit improved by 19.9% to RM13.7mil as FFB production rose and cost of production declined. Average CPO price was RM3,843/tonne in 4QFY23 vs. RM4,080/tonne in 3QFY23. FFB output surged by 29.6% QoQ to 49,253 tonnes in 4QFY23.

• CTP’s gross DPS amounted to 20 sen for FY23 (FY22: 42 sen), which translates into a yield of 2.6%. The lower FY23 gross DPS is in tandem with the 50.4% decline in the group’s net profit. Looking forward, we forecast a FY24F gross DPS of 25 sen, which implies a pedestrian yield of 3.3%.

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

Source: AmInvest Research - 31 Oct 2023