Glenealy Plantations - Sabah Output Slumps

Glenealy’s FY12 earnings of RM62.6m (-13.3% y-o-y) was weaker than expected as a sharp decline in Sabah production undermined profits. The company’s Sabah production (55% of total output) dipped 9.7% but this was mostly mitigated by rising production from its Sarawak operations. We are cutting our FY13f forecast by 6.2% to incorporate the below-estimates Sabah output. Maintain BUY, with FV of RM8.57, based on a 12.0x CY13 PER. On 13 Sept, shareholders are due to vote on the offer to take the company private at RM7.50 per share.

Below estimates. Glenealy registered a 4QFY12 revenue of RM60.9m (-20.8% y-o-y, +1.4% q-o-q) and earnings of RM14.9m (-22.4% y-o-y, +34.5% q-o-q) as substantially softer FFB production hampered profits on a y-o-y basis. Earnings for its full financial year totaled RM62.6m (-13.3% y-o-y) as marginally weaker production and prices amid rising fertilizer costs eroded profits. The company’s FY12 earnings represented 93.5% of our forecasts.

Flat production. June quarter FFB production of 75,352 tonnes came off a cliff on a y-o-y basis, falling 18.4% as output across the entire state of Sabah suffered.  In view of the quarter’s poor output, Glenealy’s full year production came in at 334,227 tonnes (-0.7% y-o-y), aided by a 12.9% production growth in Sarawak but countered by a 9.7% contraction in its Sabah production. As such, total production fell 6.5% short of our estimates. The company’s Sarawak operations contributed 45.4% of group FFB output, compared with 39.9% in FY11.

D-day on 13 Sept. A court convened meeting will be held on 13 Sept for minority shareholders to vote on the proposed privatization of Glenealy. The Edge reported yesterday that a group of minority shareholders are unhappy with the RM7.50 offer price, citing the relatively cheap valuation for the company’s shares as their main concern. However, we understand that this group of shareholders represents just 1.7% of the shares not owned by Samling and its associated companies. This is in line with our view that privatization valuation is cheap, especially on an EV per ha basis, at just USD8,250 per ha. Having said that, there has been no third party offer since the existing offer was made in January.

Maintain BUY. We trim our FY13f forecasts by 5.7% on anticipation of lower Sabah output and introduce our FY14f earnings estimate of RM86.4m. Our FV, however, remains largely unchanged at RM8.57 as we roll forward our valuation horizon to a 12.0x CY13 PER. Despite the meager production so far this year, Glenealy’s young trees may yet fuel high single-digit to low double-digit production gains.

Source: OSK