SOUTHERN ACIDS (M) BHD
KLSE (MYR): SAB (5134)
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sklyte
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Posted by sklyte > 2014-04-24 11:31 | Report Abuse
Following-up on our previous note dated on 22 Jan 2014, we revise Southern Acids (SAB) fair value from RM7.77 to RM9.20 after adjusting our previous valuation of RM20 psf to RM27 psf (inclusive of land conversion cost) on SAB‟s 644.49 acres in Kota Kemuning, Shah Alam, which is now worth at least RM758m, larger than the company‟s current market capitalization of RM572m. Our new valuation is based on the latest transacted price by Eco World Development which had recently purchased 308.72 acres of land in the vicinity for RM470.6m or RM35 psf. Given its strategic accessibility and freehold land status, we find that SAB should deserve a higher value.
An established name in oleochemical industry... SAB remains primarily an oleochemical player with roots in Klang tracing back to the late 1970s. With an annual capacity of 100,000mt, its trading partners for its palm-based fatty acids and glycerine products are mainly from US, EU, Japan, China, Korea, Middle East and India. The company, which was listed on the Main Market in 1991, eventually diversified into oil palm plantation (8,483ha), healthcare (Sri Kota Specialist Medical Centre in Klang with 232 beds) and dry bulk warehousing and export loading services (capacity: 40,000mt at North Port, Klang). The founders, under a consortium, currently own about 48% followed by Lembaga Tabung Haji, 13%. Plantations dominate the company‟s bottomline, making up 56% followed by oleochemicals 40% while healthcare and warehousing & conveying services contribute the remainder. Interestingly, the company also holds about 4.6% equity in Main Market-listed Paramount Corporation, valued at RM26.2m, based on current market capitalization.
… but has a hidden gem waiting to be unearthed. SAB owns a 644.49-acre freehold plantation estate in Kota Kemuning which currently sits on the balance sheet at RM5 psf. The landbank, which is easily accessible via the Shah Alam-Kemuning Highway and North South Expressway, is adjacent to the RM11bn Bandar Rimbayu project which was launched by IJM Land in 2012. However, management recently indicated that there are no plans to develop the said land in the next 1-2 years, which we estimate could reach up to about RM10bn in GDV if it were to do so.
Solid balance sheet and steady earnings performance. SAB has reported steady earnings growth for the last three years on the back of improved plantation sales contribution while the oleochemicals business remain steady. Besides that, the company‟s balance sheet and operating cash flow are healthy. Its current cash position stands at RM148m with zero borrowings. For the 9mFY14 financial results, the company‟s cumulative core net profit of RM30.4m already accounted for 83% of the Group‟s earnings in FY13. We expect a minimum DPS of 6sen to be announced during the 4QFY14 results next month.
Source: PublicInvest Research - 24 Apr 2014