We recently visited Padiberas Nasional Berhad (“BERNAS”) and
believe that the company’s long term prospect remained intact. BERNAS is
primarily involved in the procurement, importing, buying, processing and
selling of rice, rice by-products and paddy. In 2011, BERNAS received a renewed
mandate from the Malaysian Government to import rice for Malaysia for the next
10 years. We like BERNAS for its long term sustainable earnings, attractive valuation
of 9.0x Fwd PER (30% discount to MSM Fwd PER of 13.0x) and superior FY13E
dividend yield of 8.9%. We value BERNAS at RM3.90 based on 10x Fwd PER of its
FY13E EPS of 39.0 sen. Our 10x Fwd PER valuation is based on a +1SD over its
3-year average Fwd PER.
Sustainable earnings
for the next 10 years. BERNAS is primarily involved in the 1) procurement
and processing of paddy and 2) importation, warehousing, distribution and
marketing of rice in Malaysia. The company has been granted a 10-year extension
to import rice for Malaysia. Some of BERNAS’ products include brown, fragrant,
glutinous, broken, white, basmati and parboiled rice. BERNAS currently controls
about 24% of the paddy market and 45% of the local rice demand.
Deep in value. Based on its FY13E earnings, BERNAS is
trading at Fwd PER of 9.0x or at a 30% discount
to MSM Fwd PER of 13.0x. We believe this is unjustified as both
companies control a significant portion of the local market in their respective
businesses (MSM in sugar,
BERNAS in rice).
In addition, BERNAS’ dividend payout of 75% surpassed MSM’s level of 51%
in FY11.
More dividends to
come? In FY11, BERNAS’ net dividend
surged 38% YoY to 26.25 sen as the company increased its payout to 75% (from
50% in FY10). As BERNAS has yet to fully utilise its Section 108 credit, we believe
that its FY12E-FY13E dividend payouts may rise to the range of 80%-90%. Hence,
we expect FY12E-FY13E net dividends of 27.7sen-31.2sen, a very generous yield
of 7.9%-8.9%. As all Malaysia listed Company
will need to
comply with single tier tax system latest by 31-Dec-2013,
any section 108 account balance will be forfeited if it is not utilised.
Getting more efficient. BERNAS’ “Program Rakan Ladang” (PRL) program
has successfully raised the productivity and crop quality of local farmers.
This is done through the application of good agricultural practices. We gather
that 28,458 farmers have benefitted from the PRL Program, which saw yield
increased by 10%-20% in paddy planting
areas such as Perlis, Krian, Selangor and Kedah.
Better FY13E
earnings. FY12E earnings should
decline 12% YoY to RM145m as we expect stronger average USDMYR rate of 3.10
(+1.4% YoY). However, FY13E earnings should improve 26% YoY to RM183m as we
expect lower USDMYR rate of 3.06. As BERNAS purchase its imported paddy in USD,
lower USDMYR rate in FY13E will reduce overall Group cost, hence
higher earnings.
Risks. The
possible return of El Nino may cause paddy price to surge if the global major
planting lands for paddy are affected by the dry weather. Hence, BERNAS’ margin
may be squeezed significantly. However, El Nino is not confirmed yet by both
the Australian Bureau of Meteorology and the United States Climate Prediction
Centre at the current juncture.
No comments:
Post a Comment