MKH Oil Palm ("MKHOP"), is in the cultivation of oil palm and production and sale of crude palm oil (“CPO”) and palm kernel (“PK”), will make its debut on Bursa Main Market today. Premised on its (i) expansion of plantation estates via land acquisition; (ii) value chain expansion through the establishment of a PK crushing facility; we expect MKHOP to register core net earnings of RM50.5m and RM58.1m for FY24 and FY25, respectively. BUY with a FV of RM0.68 based on 12x over FY25 EPS, a 30% discount to its listed peers due to its smaller market capitalisation.

MKHOP owns two plantation estates in East Kalimantan, Indonesia, spanning a total area of 18,205.3 hectares (“Ha”) with 93% of the area being planted. The group intends to utilize RM42m of IPO proceeds to expand its plantation landbank, potentially acquiring additional land situated in Kutai Kartanegara, East Kalimantan, totalling around 5,000Ha, which 4,500Ha for plantation area. The acquisition is expected to be completed by 1HCY24 with the first harvesting of fresh fruit bunches (“FFB”) expected in 2.5 years from the acquisition date. This acquisition will increase the group's planted area by 25%, offering substantial volume growth potential on top of sustaining its attractive plantation age profile, which provides long-term earnings growth potential.

MKHOP is also operating a palm oil mill with a capacity of 90MT of Fresh Fruit Bunches (“FFB”) per hour, strategically located within its plantation estate. To further bolster its value chain, the group also plans to allocate RM14m of IPO proceeds towards enhancing its processing capabilities and broadening its product portfolio by venturing into the production and sale of Crude Palm Kernel Oil (“CPKO”). Management aims to establish a PK crushing facility with 90MT per day of capacity. This crushing facility is targeted to commence operations by 2QCY24 to boost its revenue stream.

MKHOP’s initiative to embrace production of CPKO offers several advantages: (i) CPKO commands a higher selling price compared to PK, (ii) in-house production of CPKO offers better margins, and (iii) CPKO offers better revenue visibility as it is a main raw material used in high-value consumer staples i.e. high-quality cooking oil and personal care products.

As at 1HFY24, MKHOP is in at a net cash position with RM89m, which is equivalent to 14% of its IPO market capitalization. The company targets for a 50% dividend payout ratio.

Source: Rakuten Research - 30 Apr 2024

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