Investment Highlights

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

• We re-visit CTP’s EV/ha (enterprise value) in this report as the group has completed the RM45mil acquisition of Fauzi- Lim Plantation. We find CTP’s EV to be even lower at RM13,704/ha after the acquisition compared to RM15,593/ha prior. We estimate Hap Seng Plantation’s EV at RM26,049/ha and TSH Resources at RM36,121/ha.

• CTP’s low EV/ha means that the market is not imputing the value of Fauzi-Lim in its share price. We think that this could be due to the fall in CPO prices, which reduces the earnings contribution of any acquisition. It also appears that the market may be ascribing a low valuation to oil palm estates in Kelantan.

• Recall that CTP proposed to acquire Fauzi-Lim from MWE Holdings in September 2022. During that time, CPO prices traded between a low of RM3,200/tonne and a high of RM4,000/tonne. Currently, CPO prices are hovering between RM3,800/tonne and RM4,000/tonne. Also, Fauzi- Lim is small at 2,023ha and located in Gua Musang.

• On a positive note, CTP’s profitability has improved after being affected by administrative expenses related to the acquisition in FY23. CTP’s net profit rebounded by 49.3% YoY to RM42.1mil in 1HFY24. For FY24F, we are assuming a FFB output growth of 7.5% (FY23: 11.7%).

• In spite of CTP’s low EV/ha, we are maintaining our HOLD recommendation. We believe that CTP’s leverage to CPO prices would not be as high as other planters due to the group’s high proportion of ageing oil palm trees. About 22% of CTP’s planted areas are more than 21 years old. The group plans to replant 1,444ha in FY24E vs. 590ha in FY23.

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

Source: AmInvest Research - 18 Jun 2024