KULIM did not end up as part of Sime Darby. Increasingly the stock has fallen off investors radar. The next few months will probably be good for mainly two sectors: oil & gas and plantations. It does not pay to even bother looking at the rest, maybe some of the high yield stocks but that does not need deep value add advice. Over the last few weeks, the trading pattern of KULIM has been very interesting. Having a look at the fundamentals, the stock is quite attractive.
KULIM is mostly involved in the palm oil business. The company has a total of 66,697 ha of oil palm plantations through the acquisition of plantation assets and controlling stakes in plantation companies. It also has oil palm plantation interests overseas in countries like Papua New Guinea through the acquisition of its subsidiary New Britain Palm Oil Ltd, PNG and through acquisitions of plantations in Sumatra, Indonesia. KULIM has also diversified into property development activities. Through its subsidiary, Johor Land Berhad, it holds a landbank of more than 2,000 acres in prime locations in Johor Bahru district. The company through the acquistion of Natural Oleochemicals Sdn Bhd, a manufacturer of oleochemicals, owns a plant operating at a capacity of 150,000 MT and a production output exceeding 103,000 MT.
Shares Issued: 305m
Free Float: 25%
Major Shareholders: Johor Corp 60%; EPF 8.6%; Kump Waqaf An-Nur 4%; Amanah Saham 2.7%
Net Gearing: 23%
NTA RM9.60
2008 PER: 5.6x
2009 PER: 5.5x
For a company in the right sector, less than 6x PER is quite ridiculous.
New Britain Tussle: KULIM owns 51% of NBPOL. NBPOL made an offer to privatise its PNG-listed 20% associate Ramu Agri Industries for USD44m or PGK5.00/share. Following the offer WR Carpenter (a subsidiary of MBf Holdings and a holder of 17% in RAI) put in a PGK6.00/share counter bid. NBPOL reacted by raising its offer to PGK6.10/share. Things got interesting, WR Carpenter raised its bid to PGK6.50/share. RAI's board rejected both offers and is valuing RAI at PGK7.94-8.98/share. RAI is PNG's largest sugar producer (8,000ha), palm oil (4,500ha) and cattle grazing (14,00ha). NBPOL has net cash of USD116m while buying RAI's market cap is around USD65m. If NBPOL is successful its palm oil land holding will increase from 45,000ha to 75,000ha.
Valuation To Peers: Sime Darby's 2008 PER is around 14x; IOI's at 20x; KLK is at 14x; Asiatic's at 11x; IJM Plant is at 14x; even Tradewinds is at 10x. KULIM's valuation has to do with its PNG's exposure, its parentage, and efficiency ratios. I think KULIM's management should be "wise enough" to try and lock up RAI even at USD70-80m as the substantive land bank increase would yield enormous visibility and economies of scale as a mid sized plantation. The fact that RM61.5m EBIt comes from PNg while only RM53.3m came from Malaysia.The market has basically valued its oleochemical component at nil. When will people realise that CPO is CPO no matter where they come from. This presents enormous valuation upside based on a simple re-rating. Being able to control 100% of RAI would alleviate the "control" issue which has been destroying valuation on KULIM's earnings.
PNG plantations at a discount, when was the last political conflict there? When was the last social uprising there? CPO from PNG is still CPO last I heard. To paraphrase Lingamspeak: It looks like CPO, it tastes like CPO, but it might not be CPO??!! Plus no Indonesian suka-suka export tax. Plus no Malaysia suka-suka windfall tax. So why such a huge discount??? Its got to narrow, if it stays at this level even Moolah will spread rumours that KULIM is up for privatisation!!! ; )
Below RM9.00, the downside is pretty limited. One can also see gradual accumulation by local funds. Capital wise, KULIM has the muscle to outbid MBf for RAI. If it does not get RAI, no matter, share price will hold steady. But if it get RAI, a re-rating will bring it easily to retest its previous 12 month high of RM10.40.
p/s photos: Michelle Saram
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