Investment Highlights

• We maintain HOLD on Chin Teck Plantations (CTP) with a higher fair value of RM8.36/share vs. RM7.55/share previously.

• Our revised fair value is based on a rolled-forward FY25F PE of 10x instead of FY24E originally. The PE of 10x is the simple average of small cap plantation companies over the past 5 years. We ascribe a 3-star ESG rating to CTP.

• CTP’s annualised 1QFY24 results were 12% above our forecast due to a stronger-than-expected gross profit margin. We have raised CTP’s FY24E net profit by 12% to account for a gross profit margin of 48% vs. 44% previously.

• CTP’s net profit fell by 15.7% YoY to RM21.3mil in 1QFY24 as administration expenses rose by 31.5% and share of profits in associates and joint ventures plunged. We think that CTP’s administrative expenses climbed in 1QFY24 due to the acquisition of Fauzi-Lim Plantation.

• Share of contribution from associates and joint ventures dived to a mere RM14k in 1QFY24 from a profit of RM3.5mil in 1QFY23. Harvesting activities in Indonesia were disrupted by unrest in neighbouring estates.

• CTP’s average CPO price slid by 6.7% to RM3,765/tonne in 1QFY24 from RM4,036/tonne in 1QFY23. The group’s FFB production rose by 3% YoY in 1QFY24.

• Comparing 1QFY24 against 4QFY23, CTP’s net profit surged by 55.5% to RM21.3mil as FFB production expanded by 30.9%.

• The strong volume of CPO production compensated for lacklustre palm product prices. Average CPO price inched down to RM3,765/tonne in 1QFY24 from RM3,843/tonne in 4QFY23.

• CTP is currently trading at a fair FY25F PE of 9x, which is marginally below its 2-year average of 10x.

Source: AmInvest Research - 30 Jan 2024