MARKET DEVELOPMENT
RHB Research Maintains Neutral on Kulim, FV RM3.53
RHB Research Maintains Neutral on Kulim, FV RM3.53
15/08/2013 (The Star) - RHB Research is maintaining its Neutral recommendation on Kulim Malaysia while the fair value is unchanged at RM3.53.
It said on Wednesday that based on the sharply better results from associate company New Britain Palm Oil (NBPO) and its own stronger fresh fruit bunches (FFB) production, it expects Kulim’s 2QFY13 results to be significantly better on-quarter.
“While its inability to secure additional stakes in NBPO is a negative, it goes to show that the group has an undervalued asset in NBPO. We maintain our NEUTRAL call on Kulim, with our FV unchanged at RM3.53,” it said.
RHB Research pointed out that NBPO’s 2QFY13 profit before tax (PBT) shot up 93.8% on-quarter to US$9.3mil as weather in Papua New Guinea normalised in April.
In 1QFY13, NBPO’s earnings were adversely affected by heavy rainfall amounting to 2.23 metres in a single quarter. Given that NBPO makes up a significant proportion of Kulim’s earnings (28% in 1Q), the improvement in its 2Q earnings should see a corresponding surge in Kulim’s 2Q earnings.
“We estimate Kulim’s 2QFY13 PBT will rise to RM39mil from RM25mil for 1QFY13,” it said.
RHB Research also expects Kulim’s plantations in Malaysia to show further earnings improvement, with 2QFY13 fresh fruit bunches (FFB) production rising 12.4% on-quarter. Against 1H last year, Kulim’s FFB production jumped 29.8% due to contribution from estates acquired from Johor Corp.
“Recall that in 1QFY13, Kulim’s Malaysia operations posted an 11.7% y-o-y increase in EBIT, making it one of the few companies with strong earnings despite a 20% decline in crude palm oil (CPO) prices. We expect this earnings momentum to continue. Our FY13 forecast earnings of RM156mil looks achievable despite the company having made only RM19mil in 1QFY13,” it pointed out.
RHB Research said NBPO’s board and independent advisers have advised shareholders to reject Kulim’s offer to buy 30 million NBPO shares at GBP5.50 each, as the offer price was deemed too low.
The research house also said the independent advisers value NBPO at GBP6.50-7.00 per share. The acquisition, if successful, would be earnings accretive and boost the FV for Kulim to RM3.80.
“However, all is not lost even if the takeover offer fails, as Kulim is NBPO’s single largest shareholder and hence the biggest beneficiary if the latter is worth GBP6.50-7.00/share. Pricing NBPO at GBP7.00 implies that Kulim’s Johor estates are valued at RM68,700 per ha, or 64 sen per sq ft, which is cheap considering some of its estates are prime property development land,” it said.
It said on Wednesday that based on the sharply better results from associate company New Britain Palm Oil (NBPO) and its own stronger fresh fruit bunches (FFB) production, it expects Kulim’s 2QFY13 results to be significantly better on-quarter.
“While its inability to secure additional stakes in NBPO is a negative, it goes to show that the group has an undervalued asset in NBPO. We maintain our NEUTRAL call on Kulim, with our FV unchanged at RM3.53,” it said.
RHB Research pointed out that NBPO’s 2QFY13 profit before tax (PBT) shot up 93.8% on-quarter to US$9.3mil as weather in Papua New Guinea normalised in April.
In 1QFY13, NBPO’s earnings were adversely affected by heavy rainfall amounting to 2.23 metres in a single quarter. Given that NBPO makes up a significant proportion of Kulim’s earnings (28% in 1Q), the improvement in its 2Q earnings should see a corresponding surge in Kulim’s 2Q earnings.
“We estimate Kulim’s 2QFY13 PBT will rise to RM39mil from RM25mil for 1QFY13,” it said.
RHB Research also expects Kulim’s plantations in Malaysia to show further earnings improvement, with 2QFY13 fresh fruit bunches (FFB) production rising 12.4% on-quarter. Against 1H last year, Kulim’s FFB production jumped 29.8% due to contribution from estates acquired from Johor Corp.
“Recall that in 1QFY13, Kulim’s Malaysia operations posted an 11.7% y-o-y increase in EBIT, making it one of the few companies with strong earnings despite a 20% decline in crude palm oil (CPO) prices. We expect this earnings momentum to continue. Our FY13 forecast earnings of RM156mil looks achievable despite the company having made only RM19mil in 1QFY13,” it pointed out.
RHB Research said NBPO’s board and independent advisers have advised shareholders to reject Kulim’s offer to buy 30 million NBPO shares at GBP5.50 each, as the offer price was deemed too low.
The research house also said the independent advisers value NBPO at GBP6.50-7.00 per share. The acquisition, if successful, would be earnings accretive and boost the FV for Kulim to RM3.80.
“However, all is not lost even if the takeover offer fails, as Kulim is NBPO’s single largest shareholder and hence the biggest beneficiary if the latter is worth GBP6.50-7.00/share. Pricing NBPO at GBP7.00 implies that Kulim’s Johor estates are valued at RM68,700 per ha, or 64 sen per sq ft, which is cheap considering some of its estates are prime property development land,” it said.