-  Although Kulim’s results were below our estimates, we are keeping our BUY recommendation on expectations of additional or special dividends. Kulim’s RNAV of RM4.00/share is mainly based on an FY15F PE of 20x on the Malaysian plantation earnings and New Britain Palm Oil Ltd’s (NBPOL) share price of GBP5.25/share.

-  Kulim’s results fell short of forecast as its 1HFY14 minority interest had already met our full-year forecast. We have revised Kulim’s FY14F EPS downwards to reflect the higher-than-expected minority interest, which mainly came from NBPOL.

-  Kulim is expected to receive more than RM2.3bil cash if it disposes the 48.97% stake in NBPOL at Sime Darby’s rumoured purchase price of GBP6.00/share. Assuming a quarter of the proceeds are given back to shareholders, the additional dividend would translate into 46 sen per share.

-  In the longer term however, Kulim’s bottomline would fall by more than half due to the loss of NBPOL’s earnings.

-  Kulim’s earnings were driven by NBPOL, which recorded a 126.3% YoY climb in pre-tax profit (ex-IAS and forex adjustments) in 1HFY14.

-  NBPOL’s turnover improved by 9.5% YoY to US$337.9mil in 1HFY14 while pre-tax profit (ex-IAS and forex) rose from US$32.3mil in 1HFY13 to US$73.1mil in 1HFY14.

-  NBPOL’s FFB production increased by 13.4% YoY in 1HFY14 while FFB processed expanded by 12.3%. Average CPO price realised was US$935/tonne (RM3,054/tonne) in 1HFY14, 5.2% higher than the US$889/tonne (RM2,733/tonne) achieved in 1HFY13.

-  On a quarterly basis, NBPOL’s average CPO price strengthened 12.2% to US$1,018/tonne (RM3,293/tonne) in 2QFY14. FFB production inched up 6.6% QoQ to 485,958 tonnes in 2QFY14.

-  In line with production trends in Papua New Guinea, we expect NBPOL’s FFB output in 2H to be lower than 1H.

-  In Malaysia, Kulim’s plantation division recorded an EBIT of RM91.5mil in 1HFY14, 39.3% higher than the RM65.7mil achieved in 1HFY13.

-  FFB production in Malaysia climbed 10.6% YoY in 1HFY14 while average CPO price realised rose 1.8% from RM2,392/tonne in 1HFY13 to RM2,436/tonne in 1HFY14.

-  EBIT margin of the plantation unit in Malaysia expanded from 16.5% in 1HFY13 to 22.0% in 1HFY14 underpinned by higher palm oil production and palm kernel price.

Source: AmeSecurities