18/05/2011 (Borneo Post) - Glenealy Plantations Bhd (Glenealy), an upstream planter, is expected to register strong production growth at least for the next few years in view of its young age profile and further expansion plans in Indonesia.

According to a research report by OSK Research Sdn Bhd (OSK Research), Glenealy was principally a timber company but was now wholly focused on oil palm activities after selling off its timber assets in 2001.

Based on figures from 2010, the company had a planted area of 28,537 hectares (ha) in Sabah and Sarawak. The trees were largely young, with 51 per cent of its trees at or younger than five years old.

Sixty per cent of the company’s trees were below peak production age, so there was ample room for fresh fruit bunch (FFB) production growth moving forward.

Following a decline in production in financial year 2011 (FY11), Glenealy was expected to experience double-digit FFB production growth in FY12 and FY13, peaking at 440,000 tonnes per annum in FY19 based on existing planted area.

This was due to improving yield which came with increasingly prime trees. With a 4,000 ha annual planting rate, OSK Research forecasted production to more than double by FY19.

A more aggressive 6,000 ha annual planting rate would bring the doubling effect one year forward to FY18.

Glenealy currently had about 11,000 ha of plantable area in Kalimantan Timur, of which some 2,000 to 3,000 ha would be planted each year.

Together with another 2,000 to 3,000 ha annual planting in Sarawak, the company’s planted area expansion would be boosted to about 4,000 to 6,000 ha per annum, the research firm observed.

This expansion rate would fuel planted area growth by 15 per cent to 22 per cent for FY11 and by 13 per cent to 18 per cent for FY12.

Based on its current stock price, Glenealy’s implied enterprise value (EV) per planted hectare was only US$6,100 compared with its Malaysian industry peers’ of US$9,000 to US$21,000.

The analyst regarded the lower EV as an implication of a particularly steep discount of more than 60 per cent from the industry average.

Glenealy’s stock was trading at a forward price earnings of 9.5 times FY11 and 10 times FY12, placing them at the lower end relative to other companies within the research house’s Malaysian plantation coverage, which were trading at between 8.2 times and 18 times FY11.

Together with its stellar balance sheet with no debt and a large cash position, the analyst regarded Glenealy as having a positive outlook at current levels. The research house pegged the 12-month fair value of RM6.05 per share.