Despite seeing a weak performance for the 9MFY23, we expect Chin Teck to deliver stronger performance in the upcoming 4QFY23 results, underpinned by lower production cost and higher FFB production yield. The final quarter results are expected to be released in Oct 2023. Maintain Neutral with unchanged TP of RM7.70 based on 11x FY24 EPS.

• Huge capex required to rehabilitate Fauzi-Lim Plantation. The proposed acquisition of Fauzi-Lim Plantation, which owns 2,023.4ha in Gua Musang, Kelantan, was completed on 19th Jan 2023. Management guided that the oil palm estate will be replanted with up to-to-date high-yielding planting materials. The Group will also improve the estate’s infrastructure to facilitate harvesting, evacuation and husbandry. A systematic regime of fertilizer application will also implement. More workforce will be added significantly to improve the production yield. Based on our rough calculation, it requires at least RM40m-50m to rehabilitate the plantation.

• Stronger FFB production for FY23. 4QFY23 FFB production was marginally higher at 49,254mt while CPO production fell from 10,199mt to 8,881mt. For the full-year, FFB production totaled 197,677mt, up 12% YoY.

• Lower average CPO prices. Based on the MPOB reference, we think the Group’s 4QFY23 recorded CPO prices would be lower. June-Aug 2023 CPO price averaged at RM3,751/mt, down 20% YoY and 7.2% QoQ.

• Strong balance sheet. The Group has zero borrowings and it is currently sitting in a cash-rich position with total cash standing at RM356.7m or RM3.95/share, which also makes up 51% of the current market capitalization.

• Unattractive valuations. The Group is currently trading at a PE multiple of 13x- 14x, which is higher than its 3-year average of 12.1x.

Source: PublicInvest Research - 18 Sept 2023