Tradewinds Plantation (BUY; TP: RM5.26) - Still a cheaper exposure to the sector

Stock Name: TWS
Company Name: TRADEWINDS (M) BHD

Research House: HLG

Price Call: BUY

Target Price: 5.26

Tradewinds Plantation (BUY; TP: RM5.26)

Still a cheaper exposure to the sector

• Management is confident about the sustainability of the current high CPOprices, with CPO prices averaging at RM3,200/tonne in 2012, backed byrelatively stable demand outlook and current supply constraint.
• Production cost will inch up by mid-single digit in 2012, mainly on theback of higher fertilizer cost as well as the full impact of basic wages whichwas raised since 2H 2011. These two drags will more than offset higher plantedhectarage coming into maturity.
• Expects FFB output to grow by 7% p.a. for the next two years, as therewould be an additional 8,000 ha of planted area coming into maturity during theperiod.
• Management indicated that it would plant the remaining landbank (at apace of ~8,000 ha p.a. for 2012 and 2013) and is actively looking to acquiremore landbank, either locally or abroad in order to expand its plantationassets further.
• Management has already identified two immediate strategies to turnaroundMardec, i.e. to bring up utilization rate gradually and to strengthen itsprocurement strategy, as absolute profitability of this business is drivenmainly by volume.
• FY12-14 net profit forecasts raised by 3.9-6.4% largely to reflecthigher FFB growth projection.
• TP raised by 4.4% from RM5.04 to RM5.26 based on unchanged 11x revisedFY12 FD EPS of 47.8 sen, to reflect our higher net profit forecasts

Source: HLIB Research 27 March 2012