-  Maintain SELL on Kulim Bhd with an unchanged fair value of RM3.40/share. Kulim is currently trading at FY14F PE of 23.4x and FY15F PE of 20.6x.

-  Risk to Kulim’s long-term growth is the sale of NBPOL (New Britain Palm Oil Ltd) to Felda Global. NBPOL accounts for a significant portion of Kulim’s earnings.

-  Kulim’s 1QFY14 core net profit was significantly below consensus estimates and our earnings forecast. In spite of this, we are keeping our earnings estimates for now. Included in Kulim’s 1QFY14 earnings were an RM57.0mil gain on fair value changes in derivatives and a forex loss of RM31.6mil.

-  Although NBPOL’s earnings rebounded in 1QFY14 after being affected by unfavourable weather in the past two years, the benefit to Kulim did not flow through completely due to higher minority interest. Kulim consolidates only 48.97% of NBPOL’s net profits.

-  On the back of NBPOL’s improved earnings, Kulim’s minority interest in the group increased from RM18.8mil in 1QFY13 to RM28.6mil in 1QFY14.

-  NBPOL’s turnover climbed 14.8% YoY to US$168.8mil in 1QFY14 on the back of higher CPO price and production. After a loss in 4QFY13, NBPOL’s pre-tax profit (ex-IAS) swung around to a positive US$21.4mil in 1QFY14.

-  NBPOL’s FFB production improved by 12.5% YoY in 1QFY14. Average CPO price realised was US$907/tonne (RM2,991/tonne) in 1QFY14 compared with US$878/tonne (RM2,705/tonne) in 1QFY13.

-  In its 1QFY14 results announcement, NBPOL said that its 6,300ha of oil palm estates in Solomon Islands was affected by a tropical cyclone.

-  The storm caused severe flooding, which damaged roads and bridges. This resulted in a one-week shut down of operations. Major clean-up and sanitation works are continuing and no major operational impact is expected.

-  In Malaysia, Kulim’s plantation unit recorded an 8.2% YoY increase in turnover in 1QFY14. FFB production growth was 11.5% YoY in 1QFY14.

-  After recording a negative growth of 22.5% MoM in February 2014, the group’s FFB production surged by 28.1% in March.

-  Average CPO price realised was RM2,585/tonne in 1QFY14, 4.4% higher than the price of RM2,475/tonne recorded in 1QFY13. MPOB’s average spot price for the whole country was RM2,672/tonne in 1QFY14.

Source: AmeSecurities