Stock Name: KULIM
Company Name: KULIM (M) BHD
Research House: INTER PACIFIC
Kulim (M) Bhd
(March 10 , RM7.46)
Outperform at RM7.40, target price at RM9.24: We raise our forecast for Kulim's revenue in financial year ending December 2010 (FY10) to RM6.9 billion on the back of higher revenue contribution from the purchase of CTP (PNG) Ltd.
We expect Kulim's crude palm oil (CPO) production to increase by 61.7% to 748,400 tonnes due to higher contribution from Papua New Guinea (PNG) and Solomon Islands (SI) following the purchase of CTP and improved estate management which should see their oil extraction rate yield reach 22%.
Kulim has a target of 30:30 whereby the company hopes to achieve a fresh fruit bunch (FFB) yield of 30 tonnes a hectare (ha) and 30% of total extraction rate. They expect to achieve this target by FY11 or FY12 for PNG and probably within four to five years for its Malaysian plantation.
The recent purchase of CTP would double Kulim's planted area to some 74,500ha in both PNG and SI. The purchase of CTP at an average price of US$8,670 (RM28,784) per planted ha is viewed as fairly valued, as CTP's average tree age is 15 years besides the fact that CTP has five mills across its three oil palm plantation estates. The current plantation FFB yield for CTP stands at 18.5 tonnes per ha.
Kulim's replanting target in FY10 for its plantation in Malaysia is between 1,000ha and 2,000ha with an estimated capital expenditure (capex) of RM30 million to RM40 million. Meanwhile, new planting in PNG and SI is at 2,000ha to 3,000ha while replanting of oil palm trees in PNG and SI involves an estimated 1,000ha. Thus, total capex for PNG and SI is estimated to reach RM100 million.
Kulim's current cost of production ex-kernel is around RM1,200 per tonne. The cost of production should reduce in view of greater usage of natural fertiliser that is produced using natural compost from the production of palm oil. It is estimated that natural fertiliser will be able to reduce chemical fertiliser usage by 33%. This will significantly reduce dependence on chemical fertiliser which is affected by global pricing.
Kulim will be selling its Menara Ansar in Johor to Al-Aqar KPJ Reit via Al-Aqar's trustee AmanahRaya Trustees Bhd for RM105 million. The transaction will be paid partly in cash of RM63 million with the balance via the issuance of 42.9 million new units of Al -Aqar at an issue price of 98 sen per unit. Kulim is expected to utilise the RM105 million to repay the group's borrowings of RM1.7 billion which will increase following the purchase of CTP via a loan of US$200 million.
We remain positive on Kulim as its vast land in PNG and SI is expected to contribute further to the growth of its plantation business. We also take into account Kulim management's effort to continuously improve their plantation yield, besides the fact that the company's food and restaurant services under QSR Brands Bhd is expected to grow further on more franchise openings and better economic outlook.
Using the sum-of parts (SOP) valuation method, we revise our fair value for Kulim shares to RM9.24 which translates into a price-to-earnings ratio (PER) of 10.2 times. This is a discount compared to its equivalent peer which is valued at a PER of above 15 times. We recommend an outperform call for Kulim. - Inter-Pacific Research, March 10
This article appeared in The Edge Financial Daily, March 11, 2010.
Company Name: KULIM (M) BHD
Research House: INTER PACIFIC
Kulim (M) Bhd
(March 10 , RM7.46)
Outperform at RM7.40, target price at RM9.24: We raise our forecast for Kulim's revenue in financial year ending December 2010 (FY10) to RM6.9 billion on the back of higher revenue contribution from the purchase of CTP (PNG) Ltd.
We expect Kulim's crude palm oil (CPO) production to increase by 61.7% to 748,400 tonnes due to higher contribution from Papua New Guinea (PNG) and Solomon Islands (SI) following the purchase of CTP and improved estate management which should see their oil extraction rate yield reach 22%.
Kulim has a target of 30:30 whereby the company hopes to achieve a fresh fruit bunch (FFB) yield of 30 tonnes a hectare (ha) and 30% of total extraction rate. They expect to achieve this target by FY11 or FY12 for PNG and probably within four to five years for its Malaysian plantation.
The recent purchase of CTP would double Kulim's planted area to some 74,500ha in both PNG and SI. The purchase of CTP at an average price of US$8,670 (RM28,784) per planted ha is viewed as fairly valued, as CTP's average tree age is 15 years besides the fact that CTP has five mills across its three oil palm plantation estates. The current plantation FFB yield for CTP stands at 18.5 tonnes per ha.
Kulim's replanting target in FY10 for its plantation in Malaysia is between 1,000ha and 2,000ha with an estimated capital expenditure (capex) of RM30 million to RM40 million. Meanwhile, new planting in PNG and SI is at 2,000ha to 3,000ha while replanting of oil palm trees in PNG and SI involves an estimated 1,000ha. Thus, total capex for PNG and SI is estimated to reach RM100 million.
Kulim's current cost of production ex-kernel is around RM1,200 per tonne. The cost of production should reduce in view of greater usage of natural fertiliser that is produced using natural compost from the production of palm oil. It is estimated that natural fertiliser will be able to reduce chemical fertiliser usage by 33%. This will significantly reduce dependence on chemical fertiliser which is affected by global pricing.
Kulim will be selling its Menara Ansar in Johor to Al-Aqar KPJ Reit via Al-Aqar's trustee AmanahRaya Trustees Bhd for RM105 million. The transaction will be paid partly in cash of RM63 million with the balance via the issuance of 42.9 million new units of Al -Aqar at an issue price of 98 sen per unit. Kulim is expected to utilise the RM105 million to repay the group's borrowings of RM1.7 billion which will increase following the purchase of CTP via a loan of US$200 million.
We remain positive on Kulim as its vast land in PNG and SI is expected to contribute further to the growth of its plantation business. We also take into account Kulim management's effort to continuously improve their plantation yield, besides the fact that the company's food and restaurant services under QSR Brands Bhd is expected to grow further on more franchise openings and better economic outlook.
Using the sum-of parts (SOP) valuation method, we revise our fair value for Kulim shares to RM9.24 which translates into a price-to-earnings ratio (PER) of 10.2 times. This is a discount compared to its equivalent peer which is valued at a PER of above 15 times. We recommend an outperform call for Kulim. - Inter-Pacific Research, March 10
This article appeared in The Edge Financial Daily, March 11, 2010.
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