-  We maintain HOLD on Kulim with a lower fair value of RM3.45/share. In our earnings forecast, we are still assuming that New Britain Palm Oil Ltd (NBPOL) would be an associate of Kulim.

-  Kulim announced that it has received 3.26% acceptances from its partial offer for NBPOL at GBP5.50/share. As such, Kulim now owns 52.23% of NBPOL versus 48.97% previously. Kulim had consolidated NBPOL’s earnings in 2QFY13.

-  This was in spite of the order by the Securities Commission (SC) of Papua New Guinea (PNG) to restrain Kulim from acquiring any shares in NBPOL. In addition, the PNG Government had approved an amendment to the Takeovers Code of PNG preventing the takeover of a company where the takeover is deemed to be contrary to the national interests of PNG.

-  After due deliberation, Kulim has commenced proceedings in the National Court of Papua New Guinea to have the order set aside to enable it to complete its partial offer for NBPOL.

-  In spite of the consolidation of NBPOL’s earnings, Kulim’s 1HFY13 results were still below our forecast and consensus estimates. This was due to NBPOL’s weak profitability.

-  NBPOL’s pre-tax profit contracted 77.8% YoY to US$14.1mil in 1HFY13 as it was dragged by 1QFY13’s poor performance. Processed FFB slid by 5.1% YoY in 1HFY13 as harvesting was hampered by the wet weather in 1QFY13.

-  NBPOL’s earnings improved QoQ in 2QFY13. The group recorded a pre-tax profit of US$9.3mil in 2QFY13 compared with US$4.8mil in 1QFY13. FFB processed in 2QFY13 was 6.8% higher than 1QFY13.

-  EBIT of Kulim’s plantation division in Malaysia rose by 11.3% from RM59mil in 1HFY12 to RM65.7mil in 1HFY13 underpinned by a 30.2% increase in FFB production. The higher FFB output was driven by the acquisition of oil palm estates from Johor Corp.

-  Turnover of the Malaysian plantation division rose by 21.4% YoY to RM398.2mil in 1HFY13 as higher volume of palm oil production mitigated the impact of lower selling prices. Average CPO price realised was RM2,471/tonne in 1HFY13, 21.0% lower than RM3,128/tonne recorded in 1HFY12. Kulim’s average CPO price was 6.7% higher than MPOB’s (Malaysian Palm Oil Board) spot price of RM2,316/tonne in 1HFY13. We reckon that Kulim might have sold forward some of its 1HFY13 CPO production last year.

Source: AmeSecurities