MKHOP is an upstream oil palm operator who cultivates oil palm, produces and sells CPO (92% of FY9/23 revenue) and palm kernel (PK – 8%) to the downstream refineries and PK crushing mills in East Kalimantan, Indonesia.

As at 29 February 2024 (LPD), MKHOP owns 2 oil palm estates through its subsidiaries, PT MKH and PT SPS with a total planted area of 15,012.4 ha and 1,996.4 ha respectively (> 90% of its total estates size). 94.9% of oil palm trees are in the prime mature stage ranging from 10 to 16 years.

Is the company profitable?

The Group Posted a Steady Revenue and Core Net Profit CAGR of 6% and 20% Respectively in FY20-23.

As at LPD, the company has an outstanding sale and purchase agreements of 49,000MT of CPO and 1,800MT of PK to be fulfilled in FY24, while 28,000MT of CPO will be delivered in FY25. Note that, our in-house average CPO price forecast for 2024F stands at RM3,700/MT.

Post-IPO growth strategies

1. New land banks acquisition with an estimated size of 5,000 ha (planted area c.4,000-4,500 ha) in Kutai Kartanegara, East Kalimantan.
2. New products offerings include production of CPKO and PKE – offers better margin from CPKO as it is generally a higher-value product as compared to PK.
3. Purchases of new machinery and equipment with workforce recruitment to enhance operational efficiency, ie. to improve oil extraction rate.

Key growth drivers:

1. Rising demand of CPO driven from both food and non-food applications in line with world population growth, and
2. Acquisition of plantation landbanks to increase its market share.

Valuation?

The IPO price of RM0.62 values MKHOP at 20.9x FY23 P/E (vs. Bursa Malaysia Plantation Index 2022 and 2023 P/E of 9.9x and 15.6x respectively, according to Bloomberg).

Closing date for the IPO application will be on 16 April 2024. The group will be listed on Bursa Malaysia’s Main Market on 30 April 2024.

Source: CGS-CIMB Research - 1 Apr 2024