MARKET DEVELOPMENT
Kulim Earnings To Stay Muted Until NBPOL Stake Increase
Kulim Earnings To Stay Muted Until NBPOL Stake Increase
25/07/2013 (Borneo Post) - Kulim Bhd (Kulim) is expected to see muted earnings until the completion of the acquisition of another 20 per cent in New Britain Palm Oil Ltd (NBPOL) for 165.05 million pounds (RM812.30 million).
According to MIDF Amanah Investment Bank Bhd’s research division (MIDF Research), it was ‘manifestly clear’ that Kulim is transforming itself into a predominantly plantation player pursuant to the disposal of its stake in QSR last year.
To note, the share acquisition will lift Kulim’s shareholding from 49 per cent to 69 per cent and, therefore, turning NBPOL from an associate into a subsidiary.
This is in line with Kulim’s strategy to prioritise on its core plantation business, added MIDF Research.
Prior to the proposed acquisition of NBPOL, Kulim had, in 2011, acquired JCorp’s plantation estates. As the acquisition of JCorp’s plantation estates were entirely funded by external borrowings, the group’s total borrowings surged 36 per cent to RM2.62 billion, translated into net gearing of 0.29 times in 2011.
But the disposal of its food and beverage (F&B) business (sale of QSR) in 2012 had helped to reduce the group’s total borrowings to RM1.12 billion, and resulted in its net gearing ratio to decline to 0.17 times.
The research house noted that as the acquisition of another 20 per cent stake in NBPOL in 2013 was likely to be funded by bank borrowings, Kulim estimates that its net gearing shall increase to 0.46 times. At this level, the gearing ratio while manageable, is higher vis-à-vis other plantation companies.
“Kulim’s financial year 2012 (FY12) revenue reflects its transformation into a pure plantation player with the likes of IJM Plantation, TH Plantation and TSH Resources.
“Its revenue in FY12 was RM906.8 million, a decline of 13 per cent year on year (y-o-y).
“The decline was mainly due to lower fresh fruit bunch (FFB) production coupled with subdued palm oil prices. Its earnings before interest and tax (EBIT) was RM128.9 million which implies an EBIT margin of 14.2 per cent, comparatively lower against its peers such as IJM Plantations and TH Plantations.
“To improve its profit margin, Kulim decided to expand its plantation business by increasing its stake in NBPOL,” the research house explained.
NBPOL (listed on both the Port Moresby and London stock exchanges) is an integrated industrial producer of sustainable palm oil in Australasia. NBPOL has a market capitalisation of 724 million pounds.
It owns and operates 45 palm oil estates, 13 palm oil mills, seed production and plant breed facilities, and two refineries in Papua New Guinea (PNG) and Solomon Island (SI).
Despite the challenges, MIDF Research believed there was substantial potential for Kulim’s earnings to grow in the future.
The proposed partial takeover of NBPOL will drive Kulim’s earnings higher. Based on the audited financial statement in 2011, approximately 80 per cent of the profit before tax from the plantation segment was contributed by the NBPOL operation in PNG and SI.
“Assuming the takeover completes in December this year, we expect Kulim’s earnings per share (EPS) in FY14 to more than double.
“Moreover, we also expect CPO price to strengthen in FY14, driven by stronger demand due to relative price attractiveness compared to other edible oils, and the escalating price of crude oil. Based on the above factors, we believe the earnings prospect for Kulim in FY14 will remain positive,” it added.
According to MIDF Amanah Investment Bank Bhd’s research division (MIDF Research), it was ‘manifestly clear’ that Kulim is transforming itself into a predominantly plantation player pursuant to the disposal of its stake in QSR last year.
To note, the share acquisition will lift Kulim’s shareholding from 49 per cent to 69 per cent and, therefore, turning NBPOL from an associate into a subsidiary.
This is in line with Kulim’s strategy to prioritise on its core plantation business, added MIDF Research.
Prior to the proposed acquisition of NBPOL, Kulim had, in 2011, acquired JCorp’s plantation estates. As the acquisition of JCorp’s plantation estates were entirely funded by external borrowings, the group’s total borrowings surged 36 per cent to RM2.62 billion, translated into net gearing of 0.29 times in 2011.
But the disposal of its food and beverage (F&B) business (sale of QSR) in 2012 had helped to reduce the group’s total borrowings to RM1.12 billion, and resulted in its net gearing ratio to decline to 0.17 times.
The research house noted that as the acquisition of another 20 per cent stake in NBPOL in 2013 was likely to be funded by bank borrowings, Kulim estimates that its net gearing shall increase to 0.46 times. At this level, the gearing ratio while manageable, is higher vis-à-vis other plantation companies.
“Kulim’s financial year 2012 (FY12) revenue reflects its transformation into a pure plantation player with the likes of IJM Plantation, TH Plantation and TSH Resources.
“Its revenue in FY12 was RM906.8 million, a decline of 13 per cent year on year (y-o-y).
“The decline was mainly due to lower fresh fruit bunch (FFB) production coupled with subdued palm oil prices. Its earnings before interest and tax (EBIT) was RM128.9 million which implies an EBIT margin of 14.2 per cent, comparatively lower against its peers such as IJM Plantations and TH Plantations.
“To improve its profit margin, Kulim decided to expand its plantation business by increasing its stake in NBPOL,” the research house explained.
NBPOL (listed on both the Port Moresby and London stock exchanges) is an integrated industrial producer of sustainable palm oil in Australasia. NBPOL has a market capitalisation of 724 million pounds.
It owns and operates 45 palm oil estates, 13 palm oil mills, seed production and plant breed facilities, and two refineries in Papua New Guinea (PNG) and Solomon Island (SI).
Despite the challenges, MIDF Research believed there was substantial potential for Kulim’s earnings to grow in the future.
The proposed partial takeover of NBPOL will drive Kulim’s earnings higher. Based on the audited financial statement in 2011, approximately 80 per cent of the profit before tax from the plantation segment was contributed by the NBPOL operation in PNG and SI.
“Assuming the takeover completes in December this year, we expect Kulim’s earnings per share (EPS) in FY14 to more than double.
“Moreover, we also expect CPO price to strengthen in FY14, driven by stronger demand due to relative price attractiveness compared to other edible oils, and the escalating price of crude oil. Based on the above factors, we believe the earnings prospect for Kulim in FY14 will remain positive,” it added.