INVESTMENT HIGHLIGHTS

• Expanding plantation landbank

• Positive on the news

• Synergy with existing estates

• Earnings estimate maintained

• Upgrade to BUY with unchanged TP of RM2.50

Expanding plantation landbank. Fima Corporation Berhad (FIMACORP) has announced that it is acquiring Java Plantations for RM5.2m cash. Note that Java Plantations holds 80% stake in a 1331 ha of leasehold plantation land in Jeli, Kelantan. We gather that the expiry period for the land is in 2069 which is 52 years from now. Target completion date is 4QFY18 which means 1QCY18.

Positive on the news. We expect FIMACORP total planted landbank to increase by 18% to 8812 ha from its current planted area of 7481 ha. Although Java Plantation is incurring small loss of RM2,439 with mature age profile of 10 years old, we believe that management will improve the FFB yield of the estate post acquisition. Hence, we expect positive earnings impact from FY20 onwards after the rehabilitation impact kicks in. We also like the management strategy of investing its cash in plantation division due to its earnings resiliency and our bullish view on palm oil price in the long run.

Synergy with existing estates. There is synergy to be realized as this landbank is located near FIMACORP existing plantation estates in Gua Musang and Kuala Krai, Kelantan.

Earnings estimate maintained. As we expect earnings impact to kick in only in FY20 after rehabilitation, we maintain our FY18 and FY19 earnings. Balance sheet impact is minimal given its net cash position.

Upgrade to BUY with unchanged TP of RM2.50. The recent share price decline has made FIMACORP valuation attractive at 9.5x Forward PE and dividend yield of 5.8%. Its balance sheet is also strong with net cash position exceeding RM300m. Our TP of RM2.50 is based on Sum Of Parts.

Source: MIDF Research - 9 Oct 2017