We retain our NEUTRAL call on Kulim and tweak our FV higher to MYR3.76 (from MYR3.53) to reflect a stronger USD on New Britain’s contributions. Although 9M13 core earnings were slightly below our expectations, things are looking up for the company as the weather in Papua New Guinea normalises. We estimate Kulim’s breakup value at MYR3.27 per share, which should serve as a floor price and a good buying level.

- Slightly below expectations. Kulim’s 9M13 results were slightly below both our and consensus expectations. After stripping out MYR79m of unrealised forex and derivative losses, Kulim’s 9M13 core PBT almost matched our full-year forecast. However, due to higher-than-expected effective tax rates and MI item, core net earnings only made up 62% of our full-year forecast.

- Forecasts. We trim our FY13 net profit estimate by 4.5% to MYR127m to incorporate higher MI element and corporate taxes due to the reconsolidation of New Britain Palm Oil. Meanwhile, we raise our FY14 forecast by 8.6% to reflect a stronger USD against MYR at 3.20 and a higher Malaysian plantation production growth of 10% (vs 6% previously).

- Operational numbers. Kulim’s Malaysian plantation saw production growth of 20.7%, which helped to cushion the decline in CPO prices. EBIT fell by just 11% YTD. New Britain should also do significantly better next year as weather normalises after two straight years of exceptionally heavy rainfall.

- Valuation. We value Kulim at MYR3.76, pegged at 18x CY14 earnings which is in line with other large players, especially now that it has become a much purer plantation play following the sale of its fast-food business. With valuation not looking compelling at current levels, we suggest buying on price pullback. The stock should see a floor price at MYR3.27, which is its breakup value.

Source: RHB