Journey to Wealth
Kulim (Malaysia) - NBPOL affected by wet weather Buy
- Although our fair value of RM5.00/share is below Kulim's current share price of RM5.19, we are keeping our BUY recommendation on the group for its special dividend of 82-93 sen/share. We believe that this would be paid in either September or October 2012.
- Based on the current share price of RM5.19, Kulim's exprice after the special dividend would be about RM4.26 to RM4.37. This would value Kulim at FY13F PEs of 13.6x to 13.9x (excluding fast food earnings), which are undemanding.
- Kulim's 1HFY12 results were in line with expectations but below consensus estimates. Kulim's core net profit fell 51.9% YoY to RM129.5mil in 1HFY12 due to low palm oil production and higher costs.
- NBPOL's (New Britain Palm Oil Ltd) FFB processed fell 5.6% YoY to 1.2mil tonnes in 1HFY12 due to torrential rains, which affected harvesting in 1QFY12. Although FFB production had improved in 2QFY12, this was not enough to compensate for the deficit in 1QFY12.
- Due to the dilution in Kulim's shareholding in NBPOL from 50.68% to 48.97%, Kulim commenced equity-accounting for NBPOL's net profits from 2QFY12 onwards. NBPOL accounted for 28% of Kulim's pre-tax profit in 2QFY12.
- The silver lining is that NBPOL has locked-in to sell about 105,000 tonnes of its CPO production at US$1,092/tonne (RM3,440/tonne). This is about 15% of NBPOL's estimated FY12F production.
- Kulim's FFB production in Malaysia fell 8.3% YoY to 259,782 tonnes in 1HFY12 due to the lag impact of the drought in early-2010.
- However, we expect FFB production to recover in 2HFY12. Kulim's internal FFB output in July 2012 expanded 25% from June's 54,129 tonnes.
- Due to a 15% to 20% YoY climb in production costs in 1HFY12, Kulim's plantation EBIT margin (Malaysia only) shrank from 26.9% in 1HFY11 to 18% in 1HFY12.
- We anticipate margin enhancements in 2HFY12, underpinned by expansions in palm oil production, which should lower production costs. Kulim's production cost in Malaysia was about RM1,500/tonne in 1HFY12.
Source: AmeSecurities
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