- We are downgrading Kulim to a HOLD with a lower fair value of RM3.85/share. Our fair value implies a PE of 18x on CY14F earnings.

- Kulim’s 1QFY13 results were below our forecast and consensus estimates due to weaker-than-expected contribution from its associate, New Britain Palm Oil Ltd (NBPOL).

- NBPOL recorded a pre-tax profit of US$4.8mil in 1QFY13 against US$34.1mil in 1QFY12. NBPOL processed 6.1% fewer FFB in 1QFY13 compared with 1QFY12 due to heavy rainfall, which affected harvesting.

- In its announcement dated mid-May 2013, NBPOL said that the period of extremely high rainfall has abated and normal weather patterns have returned.

- As at end-April 2013, the deficit in the FFB processed versus last year has been reduced to zero and NBPOL is positioned to take advantage of the drier weather in the coming months.

- On its own, Kulim’s results were decent. In spite of lower CPO price, the group’s plantation division in Malaysia recorded YoY expansions in turnover and operating profit in 1QFY13.

- These were driven by an increase in the volume of FFB produced, which was partly underpinned by the acquisition of oil palm estates from Johor Corp.

- Turnover of the plantation division rose 21.8% YoY to RM196mil in 1QFY13.

- Although average CPO price declined 20.1% from RM3,099/tonne in 1QFY12 to RM2,475/tonne in 1QFY13, this was fully compensated by a 31.6% climb in the amount of FFB produced.

- Operating profit of the plantation division in Malaysia rose 11.7% YoY to RM37.3mil in 1QFY13.

- Shipping division also recorded improvements in topline and operating profit in 1QFY13. The division recorded an 8% expansion in operating profit on the back of a 12.5% YoY rise in turnover in 1QFY13.

Source: AmeSecurities