We lift our TP for Kulim to MYR3.00 (from MYR2.95, 11% upside) while maintaining our BUY call. It is well-positioned to benefit from the current weak market condition, as the timely sale of New Britain Palm Oil has resulted in it holding MYR1.39bn in net cash. This provides opportunities for it to acquire cheap plantation assets. Successful deployment of its cash could serve as a re-rating catalyst for the stock.

Results below expectations. Kulim’s 1H15 results were slightly below expectations, on weaker-than-anticipated palm oil prices while FFB production growth remains on track to hit our 6% target for the year. Its MYR25.1m core earnings made up 35% of our full-year forecast of MYR72m. We trim our FY15F earnings by 6.9% to MYR67m, taking into account the lower average CPO price assumption of MYR2,200/tonnefrom MYR2,350/tonne earlier.

Plantation profitability. Despite the decline in the price of palm oil, we believe Kulim’s plantation segment’s profitability will be relatively resilient, given that its percentage of prime age trees is at an all-time high while the percentage of old trees continues to decline – which implies steady production growth and falling production costs per tonne.

Strong balance sheet. The current market rout could prove to be a boon for Kulim, given its sizeable net cash. On a consolidated basis, Kulim holds MYR932.8m in net cash. However, if we strip out its subsidiary EA Technique’s (EATECH MK, NR) net debt, Kulim really holds MYR1.39bn in net cash at the company level. Its timely sale of New Britain Palm Oil has armed it with plenty of cash to acquire cheap assets.

TP rises. We increase our SOP-derived TP for Kulim to MYR3.00 from MYR2.95, taking into considering the lower EA Technique stock price and adjusting for its net cash position.