Friday, 15 March 2013

Genting Plantations - From an implied MV/ha perspective

- Affirm BUY on Genting Plantations (GenP) with an unchanged fair value of RM9.55/share. Our fair value implies an FY13F PE of 16.6x. We have reduced GenP’s FY13F EPS by 3.5% for housekeeping reasons.

- GenP’s average PE was at 17.1x in the past five years. The group’s PE band ranged from a low of 5.2x to a high of 27.5x.

- In this report, we take a look at the implied market value per ha of GenP’s plantation landbank. After stripping out net cash and the value of the property division based on PE and earnings from the group’s market capitalisation, we estimate the implied market value at RM27,581/ha.

- We believe that this is undemanding compared with IOI Corporation’s estimated RM88,468/ha and Kuala Lumpur Kepong’s RM60,247/ha.

- However, we acknowledge that IOI and KLK could be commanding a premium for their landbank due to the property development potential of some of their plantation land in Malaysia and their higher proportion of mature areas.

- The implied market value of GenP’s plantation landbank is also attractive as it has not reflected the growing proportion of planted and mature areas in Indonesia.

- Additionally in Malaysia, more than 95% or 57,000ha of GenP’s land are mature areas, with a large portion of oil palm trees in the age bracket of eight to 20 years old. The average age of the oil palm trees is roughly 15 years in Malaysia.

- GenP has approximately 162,741ha of plantation landbank in Indonesia. Out of these, about 36% are planted with oil palm. Out of the planted area of 59,000ha, roughly 14% can be harvested. The group is in the midst of completing the acquisition of another 16,323ha of land in Indonesia.

- About 16% of GenP’s oil palm trees in Indonesia are between four and seven years old, while the balance 84% are aged one to three years.

- Based on transactions, which took place in FY12, market value of partly-planted landbank in Riau and Kalimantan range between RM6,000/ha and RM20,000/ha. We believe that the wide range in the market values reflects the proportion of the planted areas.

- In Sabah, we estimate the market value of prime plantation land at RM50,000/ha to RM60,000/ha.

Source: AmeSecurities

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