KULIM (FV RM5.47 - BUY) FY11 Results Review: Priming For a Stronger Year

We are maintaining Kulim as Buy, lifting our  fair value to RM5.47 based on 13x FY12 earnings. The FY11 numbers were a little below our forecast but we believe FY12 will be a better year fuelled by  contribution from  Kulim’s  newly acquired estates in Malaysia. We  are raising our profit forecast to factor in  a  more aggressive yield curve at its PNG plantations. The stock is poised for a rerating once the sale of QSR is completed in March or April, which will transform Kulim into a purer plantation giant with more than 100k ha of planted area.

Undershooting our forecast. Kulim’s FY11 core earnings came in at RM472.5m, missing our estimate of RM501.3m by 5.7% but met consensus forecast of RM480.0m. PNG-driven.  New Britain  Palm Oil (NBPO) continued to be the biggest contributor to Kulim’s profits,  accounting for  an estimated 60.5% at net profit level.  EBIT surged 95.8%, boosted by  a 32.3%  leap in FFB production  and a  30.4% increase in realized CPO price. NBPO had the benefit of full year contribution from its Kula Plantation acquired in April 2010. Its FFB production, at 1.74m tonnes, was within our forecast but surpassed management guidance by 8.6%.

Malaysia plantations. Production growth was slower than at PNG but still a commendable 15.5%.  The realised CPO price  of RM3,193 per tonne was close to the MPOB average. At EBIT level,  the  Malaysian plantations recorded a relatively mild 11.3% increase, which appears low compared against production growth and the 22.6% rise in realized CPO price. We believe this was due to replanting cost, which it expensed off in its P&L. This segment should do well in 2012 on the additional contribution from estates acquired from Johor Corp. Management expects FFB production to increase to 800k tonnes this year.

QSR’s final days. The food & restaurants segment saw a mild 2.4% increase in EBIT. The sale of QSR should be completed in March or April, which should result in Kulim ending up with an additional  RM1.2bn in its coffers. There could also be a special dividend /capital repayment should Kulim fail to find any acquisition target.

Change in forecasts. We are tweaking up our forecast to RM531.0m for FY12 from RM504.8m previously, factoring in  more aggressive yields from  PNG. This  leads to stronger production despite  a smaller  area due to replanting. We are also introducing our FY13 forecast of RM600.3m. These forecasts assume that QSR remains in Kulim’s stable.  This planter  is still one of the cheapest among the large Malaysian plantation companies.

Source: OSK188