Investment Highlights

• We maintain HOLD on Chin Teck Plantations (CTP) with an unchanged fair value of RM8.36/share, based on a FY25F PE of 10x - the simple average of small cap plantation companies over the past 5 years. We ascribe a neutral 3- star ESG rating to CTP.

• In this report, we compare the valuations, operational metrics and dividends of CTP with its sister company, Negri Sembilan Oil Palms (NSOP).

• We find CTP to be a more interesting investment proposition compared with NSOP. In spite of this, we are not upgrading CTP to a BUY as its liquidity is low and the size of its planted areas is small.

• CTP is currently trading at a FYE8/25F PE of 8.9x. In comparison, NSOP trades at a higher FYE12/25F PE of 11.5x assuming a 20% net profit growth. CTP’s P/BV is 0.8x vs. NSOP’s 0.5x. CTP’s return on equity was 6.4% in FYE8/23 against NSOP’s 3% in FYE12/23.

• CTP is larger than NSOP. CTP has 12,021ha of planted areas vs. NSOP’s 7,174ha. We estimate CTP’s gross profit per mature ha at RM8,624 in FYE8/23 compared with NSOP’s RM5,940 in FYE12/23. Based on the gross profit, CTP’s cost is estimated to be RM2,502/tonne in FYE8/23 vs. NSOP’s cost of more than RM3,000/tonne.

• CTP has a bigger proportion of young oil palm trees compared to NSOP. 26% of CTP’s planted areas are in the prime age of 11-15 years vs. NSOP’s 14%. Another 22% of CTP’s are 6-10 years old compared to 23% for NSOP. 22% of CTP’s oil palm trees are more than 20 years old vs. 12% for NSOP.

• Supported by young trees, CTP’s FFB yields and OERs are higher than NSOP. In FYE8/23, CTP’s FFB yield was 19.1 tonnes/ha while its OER was 19.1%. In contrast, NSOP’s FFB yield was 16.9 tonnes/ha while its OER was 18% in FYE12/22.

• CTP’s dividend yield was 2.7% (gross DPS: 20 sen) with a payout ratio of 34% in FYE8/23. In comparison, NSOP’s dividend yield (gross DPS: 12 sen) was 3% and its payout ratio 47% in FYE12/23.

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

Source: AmInvest Research - 15 Apr 2024