Kulim - Boost from low effective tax rate BUY

- Maintain BUY on Kulim with a lower fair value of RM4.10/share versus RM4.35/share previously.

- Kulim’s FY12 core net profit was in line with our expectations and consensus estimates after adjusting for the exceptional item and a low effective tax rate.

- The group’s effective tax rate was 4.4% in FY12 against 33.8% in FY11 due to the exclusion of a net unrealised fair value gain on the deemed disposal of New Britain Palm Oil Ltd (NBPOL).

- Kulim recognised a gain on the deemed disposal of NBPOL of RM1.9bil in 2QFY12. Subsequently, the group impaired its investment in NBPOL by RM1.3bil in 4QFY12 due to the fall in NBPOL’s share price.

- EBIT of Kulim’s plantation division in Malaysia declined 33.7% YoY to RM156.9mil in FY12 dragged by lower selling prices and higher production costs.

- Average CPO price realised in Malaysia was at RM2,923/tonne in FY12, 8.5% weaker than the price of RM3,193/tonne in FY11.

- In spite of higher FFB produced, EBIT margin eased from 28.8% in FY11 to 22% in FY12 due to increases in fertiliser and labour costs. Kulim’s FFB production rose 12.2% YoY to 712,526 tonnes in FY12.

- NBPOL realised an average CPO price of US$1,062/tonne or RM3,280/tonne in FY12 compared with US$1,108/tonne or RM3,389/tonne in the previous year.

- In early-February 2013, NBPOL said that it had faced heavy rains in January in West New Britain. FFB production was 5% YoY lower in January 2013.

- NBPOL also said that once the heavy rains subsided, it was well-prepared with additional labour to maximise the harvest. Longer harvesting intervals and crop losses are not expected to materialise yet.

- NBPOL sold forward 94,000 tonnes of CPO at an average price of US$893/tonne or RM2,768/tonne as at end-FY12. As at 20 February 2013, forward sales of NBPOL amounted to 123,500 tonnes of CPO at an average price of US$890/tonne (RM2,759/tonne).

Source: AmeSecurities