May 18, 2011

GNEALY - Glenealy Plantations shows signs of production recovery

Stock Name: GNEALY
Company Name: GLENEALY PLANTATIONS (M) BHD
Research House: OSK

Glenealy Plantations (Malaya) Bhd
(May 18, RM5.27)
Maintain buy at RM5.10 with revised target price of RM6.40 (from RM6.05)
: Glenealy's 9MFY11 core earnings surged 91.2% year-on-year (y-o-y) to RM53 million, representing 87.1% of our full-year forecast. Earnings before interest, tax, depreciation and amortisation (Ebitda) rose 59.8% while profit before tax leaped by 89.3%.

Ebitda margins were much stronger at 60.9% from last year's 46.7% due to sharply higher palm oil prices and lower expenses. Revenue was up by 22.7% to RM181.8 million and accounts for 72.2% of our revenue forecast, which we consider in line. Deviation from our earnings estimates came from lower than expected cost of sales and operating expenses, which decreased 5.5% y-o-y despite the higher revenue. We had initially expected costs to rise 7.1%. We will seek further clarification from management on the matter.

Glenealy's 9MFY11 fresh fruit bunches (FFB) production was down 2.6% y-o-y, in line with our full-year estimates for a 2.2% decrease. Crude palm oil (CPO) production decreased by 10.8%.

The company has, however, shown signs of a recovery in production in the past few months. In 3QFY11, FFB production was up 4% y-o-y after a poor 2QFY11 when production dropped by 14.9% y-o-y. For February and March 2011 combined, FFB production was clearly stronger y-o-y, higher by 17.8%.

We trim down our cost assumptions for both FY11 and FY12, thus increasing our FY11 earnings forecast by 12.2% to RM68.3 million from RM60.9 million previously. Our FY12 earnings forecast is raised by 7.2% to RM61.7 million from RM57.6 million. Pegged at 12 times FY12 earnings per share, we maintain our 'buy' call and have a revised fair value of RM6.40 for the stock.

The stock is currently trading at 9.5 times FY12 EPS and US$5,850 (RM17,667) earned value per hectare. ' OSK Research, May 18


This article appeared in The Edge Financial Daily, May 19, 2011.

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