- We are downgrading Kulim Bhd from BUY to HOLD with a lower RNAV-based fair value of RM3.65/share. In spite of the decent dividend payout of RM0.78/share over two years, we believe that concerns over the group’s oil and gas venture would weigh on its share price.

- The deadline for Sime Darby’s offer for NBPOL’s shares has been extended as the European Commission needs more time to analyse the impact of Sime’s acquisition. We understand that the delay would take about a month. Sime Darby does not foresee any problem getting approval from the European Commission.

- After the acquisition is completed, Sime’s and NBPOL’s refineries in Europe would have a total annual production capacity of 750,000 tonnes. This is about 10.7% of European Union’s annual palm oil imports of about seven million tonnes.

- Kulim’s 9MFY14 results were below our expectations and consensus estimates due to the sharp 78.3% QoQ fall in NBPOL’s operating profit in 3QFY14. According to NBPOL’s announcement, the government’s revaluation of the PNG Kina currency in early-June 2014 had increased its unit production cost.

- Kulim’s Malaysia plantation unit recorded a 24.8% YoY expansion in EBIT in 9MFY14. Average CPO price realised was RM2,548/tonne in 9MFY14 against RM2,692/tonne in 9MFY13. FFB processed inched up 3.0% YoY to 938,970 tonnes in 9MFY14.

- Comparing 3QFY14 against 2QFY14, FFB production in Malaysia fell by 6.0%. In spite of this, FFB processed rose by 13.9% QoQ in 3QFY14 due to increased FFB purchases.

- NBPOL accounted for 76% of Kulim’s 9MFY14 EBIT. We estimate that Kulim’s FY15F earnings would fall by 30% to 40% after the sale of NBPOL.

- NBPOL’s average CPO price realised grew 4.9% from US$879/tonne in 9MFY13 to US$922/tonne in 9MFY14. The group’s FFB production surged by 12.1% YoY in 9MFY14. On a quarterly basis, NBPOL’s FFB production shrank by 27.2% in 3QFY14 as 2H is usually a seasonally weaker output period in PNG.

- As of 28 November 2014, NBPOL has sold forward 96,000 tonnes of CPO production at an average CPO price of US$767/tonne (RM2,592/tonne) and 33,000 tonnes of CPO for delivery in FY15F at US$782/tonne (RM2,643/tonne).  

Source: AmeSecurities