两年前以前，cpo(crude palm oil)价格落后co(crude oil)。
两年前，生化柴油的议程成型，至今cpo就享有了200美元的co的平均溢价。
近月溢价已经收窄到70美元。
两个不同的"crude"产品做benchmarking，肯定是不标准的，但effective market需要如此解释。也因此群众集体共识是他们的关系是紧扣的，或许这是炒家寻找原产品上涨原因的借口之一？两者替代性关系并不强烈，但群众对他们的价格关系很有认同感，原因是因为是1)炒作行为，2)政策变动，和3)effective market共识引起的同步上涨。
cpo的下调，我们认为有两个关键性的支持点，第一个是biodiesel breakeven price，第二个是co price。
不benchmarking soybean oil，是因他们的价格缺口(gap)关系更复杂，缺口超过500，600，700美元都是可能的。
回到原点：
cpo的下调，我们认为有两个关键性的支持点，第一个是biodiesel breakeven price，第二个是co price。
第一个支持点如果长期被击破(事实上已经击破)，我们相信第二个支持点也岌岌可危，但我们不会不甘寂寞地去预测可能会发生什么事，也没这本领。
7.33桶原油可折合成1 mton，简单来讲只要cpo price小过7.33桶的原油，即为第二个支持点被击破。
第一个支持点为biodiesel breakeven price，亦即每桶原油价 x 8.35
例子就是，如果原油每桶140美元，那么，cpo就必须在1169美元/mt以上价位，如果跌破，biodiesel就有利可图。
如果是严重跌破，大型种植股就不会有任何溢价优势了，尤以运作成本高，没有diversified，没有明显niche market的公司。不点名了。
重复重点!
第一个关口 (已被击破)
原油价 x 8.35
第二个关口 (岌岌可危)
原油价 x 7.33
货币以美元计。
23 July 2008
kurnia setia拨地，扩充产业。
kurnia setia把位于ladang bukit goh的全部园地，"转移"给独资子公司。
1500acres的土地利用方式 ：
245acres作为产业发展
177acres政府办公大楼
1078acres(=436ha)则继续保持种植
子公司受权在土地转移前，进入ladang bukit goh活动，其中包括1078acres的ffb collection and selling.
Date Announced : 21/07/2008
Type : Announcement
Subject : SALE AND PURCHASE AGREEMENT BETWEEN KURNIA SETIA BERHAD AND ITS WHOLLY-OWNED SUBSIDIARY KURNIA SETIA DEVELOPMENT SDN. BHD.
Contents : Kurnia Setia Berhad (KSB/the Vendor/the Company) wishes to announce that on 21July 2008 had entered into three (3) Sale and Purchase Agreements (the Agreement) with its wholly-owned subsidiary Kurnia Setia Development Sdn. Bhd. (KSD/the Purchaser) as follows :
(i) Sale and Puchase Agreement of 1,078 acres of land in Bukit Goh, Kuantan, Pahang.
(ii) Sale and Purchase Agreement of 245 acres of land in Bukit Goh, Kuantan, Pahang.
(iii) Sale and Purchase Agreement of 177 acres of land in Bukit Goh, Kuantan, Pahang.
KSB is desirous to sell a piece of plantation land measuring 1,500 acres (the whole land) owned by KSB known as Ladang Bukit Goh to KSD, for the intention to develop the land into a mixed development project to be known as Kota Sri Ahmad Shah. KSD is a company involved in construction and property development.
It was hereby agreed by the Board of Directors of KSB that the sale of the whole land of 1,500 acres is in the best interest of the Company. Since then, KSB had surrendered the titles of the said land i.e HS (D) 70 PT 2070 for 500 acres and HS (D) 301 PT 3971 for 1,000 acres, both in Mukim Kuala Kuantan, District of Kuantan, Pahang to the State Authority for the purpose of conversion, subdivision and issuance of qualified titles. The tenure for the leasehold of HS (D) 70 PT 2070 is for 99 years and will expire on 3 February 2069 and the tenure for the leasehold of HS (D) 301 PT 3971 is for 99 years and will expire on 16 October 2071.
The said 1,500 acres of land will be subdivided into three lots of land measuring approximately of 245 acres, 1,078 acres and 177 acres. As such the first Phase 1A of 245 acres will be further subdivided into 1,274 individual lots for the proposed mixed housing project of Kota Sri Ahmad Shah, the 177 acres of land is earmarked for the proposed development of the new State Government Administrative Centre and the remaining 1,078 acres of land will be re alienated with the existing agriculture category of use.
Salient Terms and Conditions
The State Authority shall re alienate the 245 acres of land to KSD in the form of the issuance of 1,274 individual titles of subdivided lots with commercial and/or residential category of land use as approved by the "Majlis Perbandaran Kuantan".
The remaining portion of 1,255 acres of land shall be subdivided into 1,078 acres and 177 acres of land which will be realienated by the State Authority to KSB. The sale and purchase of 1,078 acres of land is conditional upon KSB obtaining the approval from the Foreign Investment Committee (FIC). Both KSB/KSD undertakes to comply with any terms or conditions imposed by the FIC.
Method of Payment and Completion Date
The consideration for the 1,078 acres shall be the sum of RM22,020,937.07, for the 177 acres of land shall be the sum of RM3,615,682.62 and for the Phase 1A of 245 acres in the form of 1,274 lots shall be the sum of RM5,004,758.42. The value of the whole land is based on the net book value of the assets. Payment shall be made by way of share swap and shares will be issued to the Vendor as follows :
(i) for 1,078 acres of land, shall be within 3 months from the date of FIC approval
(ii) for 177 acres and 245 acres of land, within 3 months from the date of the Agreement
KSD shall issue a total of 30,641,378 shares of RM1.00 per share to KSB. As such, the issued and paid-up capital of KSD will increase from existing 4,750,000 shares of RM1.00 per share to 35,391,378 shares of RM1.00 per share.
Notwithstanding the foregoing provision, the Vendor hereby agrees to allow the Purchaser to enter into the 1,500 acres of land prior to the Completion Period for the purpose of carrying out any preliminary works on the whole land for the purpose of the said Project. The Purchaser hereby agrees that the Vendor shall have the absolute right to all incomes derived from collection and selling of oil palm fresh fruit bunches on the said 1,078 acres and 177 acres of land until 31 December 2008.
The date that the Consideration Shares issued to KSB shall be referred to as the 'Completion Date'.
Approval of State Authority and FIC
As at the date of this Agreement, the individual qualified titles in respect of the 1,078 acres and 177 acres of land and the individual qualified sub-divided titles in respect of the 1,274 lots have not been issued by the State Authority. The application process is on-going and expected to be completed by end of this year.
In the event the FIC approval on the 1,078 acres of land is not obtained or approved within 3 months from the date of the Agreement, the parties hereby agrees that an extension period or any other extended period shall be mutually agreed upon by the parties.
© 2008, Bursa Malaysia Berhad. All Rights Reserved.
1500acres的土地利用方式 ：
245acres作为产业发展
177acres政府办公大楼
1078acres(=436ha)则继续保持种植
子公司受权在土地转移前，进入ladang bukit goh活动，其中包括1078acres的ffb collection and selling.
Date Announced : 21/07/2008
Type : Announcement
Subject : SALE AND PURCHASE AGREEMENT BETWEEN KURNIA SETIA BERHAD AND ITS WHOLLY-OWNED SUBSIDIARY KURNIA SETIA DEVELOPMENT SDN. BHD.
Contents : Kurnia Setia Berhad (KSB/the Vendor/the Company) wishes to announce that on 21July 2008 had entered into three (3) Sale and Purchase Agreements (the Agreement) with its wholly-owned subsidiary Kurnia Setia Development Sdn. Bhd. (KSD/the Purchaser) as follows :
(i) Sale and Puchase Agreement of 1,078 acres of land in Bukit Goh, Kuantan, Pahang.
(ii) Sale and Purchase Agreement of 245 acres of land in Bukit Goh, Kuantan, Pahang.
(iii) Sale and Purchase Agreement of 177 acres of land in Bukit Goh, Kuantan, Pahang.
KSB is desirous to sell a piece of plantation land measuring 1,500 acres (the whole land) owned by KSB known as Ladang Bukit Goh to KSD, for the intention to develop the land into a mixed development project to be known as Kota Sri Ahmad Shah. KSD is a company involved in construction and property development.
It was hereby agreed by the Board of Directors of KSB that the sale of the whole land of 1,500 acres is in the best interest of the Company. Since then, KSB had surrendered the titles of the said land i.e HS (D) 70 PT 2070 for 500 acres and HS (D) 301 PT 3971 for 1,000 acres, both in Mukim Kuala Kuantan, District of Kuantan, Pahang to the State Authority for the purpose of conversion, subdivision and issuance of qualified titles. The tenure for the leasehold of HS (D) 70 PT 2070 is for 99 years and will expire on 3 February 2069 and the tenure for the leasehold of HS (D) 301 PT 3971 is for 99 years and will expire on 16 October 2071.
The said 1,500 acres of land will be subdivided into three lots of land measuring approximately of 245 acres, 1,078 acres and 177 acres. As such the first Phase 1A of 245 acres will be further subdivided into 1,274 individual lots for the proposed mixed housing project of Kota Sri Ahmad Shah, the 177 acres of land is earmarked for the proposed development of the new State Government Administrative Centre and the remaining 1,078 acres of land will be re alienated with the existing agriculture category of use.
Salient Terms and Conditions
The State Authority shall re alienate the 245 acres of land to KSD in the form of the issuance of 1,274 individual titles of subdivided lots with commercial and/or residential category of land use as approved by the "Majlis Perbandaran Kuantan".
The remaining portion of 1,255 acres of land shall be subdivided into 1,078 acres and 177 acres of land which will be realienated by the State Authority to KSB. The sale and purchase of 1,078 acres of land is conditional upon KSB obtaining the approval from the Foreign Investment Committee (FIC). Both KSB/KSD undertakes to comply with any terms or conditions imposed by the FIC.
Method of Payment and Completion Date
The consideration for the 1,078 acres shall be the sum of RM22,020,937.07, for the 177 acres of land shall be the sum of RM3,615,682.62 and for the Phase 1A of 245 acres in the form of 1,274 lots shall be the sum of RM5,004,758.42. The value of the whole land is based on the net book value of the assets. Payment shall be made by way of share swap and shares will be issued to the Vendor as follows :
(i) for 1,078 acres of land, shall be within 3 months from the date of FIC approval
(ii) for 177 acres and 245 acres of land, within 3 months from the date of the Agreement
KSD shall issue a total of 30,641,378 shares of RM1.00 per share to KSB. As such, the issued and paid-up capital of KSD will increase from existing 4,750,000 shares of RM1.00 per share to 35,391,378 shares of RM1.00 per share.
Notwithstanding the foregoing provision, the Vendor hereby agrees to allow the Purchaser to enter into the 1,500 acres of land prior to the Completion Period for the purpose of carrying out any preliminary works on the whole land for the purpose of the said Project. The Purchaser hereby agrees that the Vendor shall have the absolute right to all incomes derived from collection and selling of oil palm fresh fruit bunches on the said 1,078 acres and 177 acres of land until 31 December 2008.
The date that the Consideration Shares issued to KSB shall be referred to as the 'Completion Date'.
Approval of State Authority and FIC
As at the date of this Agreement, the individual qualified titles in respect of the 1,078 acres and 177 acres of land and the individual qualified sub-divided titles in respect of the 1,274 lots have not been issued by the State Authority. The application process is on-going and expected to be completed by end of this year.
In the event the FIC approval on the 1,078 acres of land is not obtained or approved within 3 months from the date of the Agreement, the parties hereby agrees that an extension period or any other extended period shall be mutually agreed upon by the parties.
© 2008, Bursa Malaysia Berhad. All Rights Reserved.
TAANN与PELITA HOLDINGS成立JV
taann与PELITA成立JV,发展位于Sibu,Sarawak面积4,280.2ha的NCR land.公告中没有提及需要注入多少资金，也没有inspection document,应该是小投资。
Date Announced : 25/04/2008
Type : Announcement
Subject :
JOINT VENTURE AGREEMENT BETWEEN TA ANN HOLDINGS BHD AND PELITA HOLDINGS SDN BHD
Contents : The Board of Directors of Ta Ann Holdings Berhad (“TA ANN” or the “Company”) is pleased to announce that a wholly owned subsidiary of the Company, Ta Ann Plantation Sdn Bhd (hereinafter referred to as “TAP”) has entered into a Joint Venture Agreement (“JVA”) with Pelita Holdings Sdn Bhd (“PHSB”).
The details of this announcement are outlined below.
Announcement Details :
INTRODUCTION
The Board of Directors of TA ANN is pleased to announce that a wholly owned subsidiary of the Company, TAP has entered into a JVA with PHSB for the purpose of setting up a Joint Venture Company, (hereinafter referred to as “JVC”) to be incorporated by the Company and PHSB under the Companies Act 1965 and jointly owned by the parties to implement an oil palm development project (hereinafter referred to as “the Project”) in partnership with the Sarawak State Government and Native landowners (hereinafter referred to as “NCR Owners”) over the parcels of NCR land situated at Durin, Sibu Division, Sarawak containing a gross area of 4,280.2 hectares (hereinafter referred to as “the said Land”).
PARTIES
PHSB
PHSB is a subsidiary of PELITA (Land Custody and Development Authority), a statutory body under the Ministry of Rural and Land Development, Sarawak.
NCR Owners
The NCR Owners are the natives who are in occupation of and having Native Customary Rights (NCR) over the said Land.
TERMS OF THE JVA
Equity Structure
The equity structure of the JVC will be as follows:
Party Percentage of holdings
TA ANN 60%
NCR Owners 30%
PHSB 10%
PHSB’s Role in the JVC
PHSB shall arrange to carry out the Environmental Impact Assessment (EIA) Study for the Project, prepare the necessary EIA Report and to submit the report to and for approval by the Natural Resource and Environmental Board (NREB), Sarawak.
PHSB will apply to the relevant authorities for the alienation of the said Land to the JVC and will ensure that the application be expeditiously approved in the interest of the viability of the Project.
PHSB will also be responsible for initiating and facilitating the process of sorting out land matters relating to NCR Owners involved in the JVC.
TAP’s Role in the JVC
TAP shall set up a team of competent and professional personnel to develop and manage the Project. TA ANN will provide other assistance to the JVC as may be necessary including but not limited to the sourcing of funds for the Project and providing such necessary support if required from other members of Ta Ann Group (hereinafter referred to as “the Group”).
SOURCE OF FUNDS
TAP’s participation in the proposed JVC will be financed through the Group’s internally generated funds.
RATIONALE FOR THE PROPOSED JVA
The JVA will enable the Group to further expand its total acreage of oil palm plantations. This is in line with the Group’s aim of continually growing its oil palm division to achieve greater economies of scale and to broaden its earnings base.
The participation of PHSB and the NCR Owners will enhance the viability of the Project. PHSB has vast experience in facilitating joint ventures between private sector investors and native land owners. It is also well versed in the procedural requirements for the implementation of such projects.
The NCR Owners’ participation will ensure there is ample and suitable land for the implementation of the Project. It will also improve the potential returns of the JVC as there will be no initial cost for the purchase of land.
FINANCIAL EFFECTS OF THE PROPOSED JVA
Earnings
The proposed JVA is not expected to contribute to the earnings of TA ANN for financial year ending 31 December 2008. However it is expected to contribute positively in the future years.
Net Assets, Share Capital and Substantial Shareholders’ Shareholdings
The proposed JVA is not expected to have significant effects on the net assets of TA ANN for financial year ending 31 December 2008. The proposed joint venture does not have any effect on the share capital and shareholding structure of TA ANN for financial year ending 31 December 2008.
DIRECTORS AND SUBSTANTIAL SHAREHOLDERS’ INTEREST
None of the directors and / or substantial shareholders of TA ANN and / or any persons connected to them have any interest, direct or indirect in the JVA.
DIRECTORS’ STATEMENT
The Directors of TA ANN are of the opinion that the proposed JVA is in the best interest of the Company and the Group.
This announcement is dated 25th April 2008.
© 2008, Bursa Malaysia Berhad. All Rights Reserved.
Date Announced : 25/04/2008
Type : Announcement
Subject :
JOINT VENTURE AGREEMENT BETWEEN TA ANN HOLDINGS BHD AND PELITA HOLDINGS SDN BHD
Contents : The Board of Directors of Ta Ann Holdings Berhad (“TA ANN” or the “Company”) is pleased to announce that a wholly owned subsidiary of the Company, Ta Ann Plantation Sdn Bhd (hereinafter referred to as “TAP”) has entered into a Joint Venture Agreement (“JVA”) with Pelita Holdings Sdn Bhd (“PHSB”).
The details of this announcement are outlined below.
Announcement Details :
INTRODUCTION
The Board of Directors of TA ANN is pleased to announce that a wholly owned subsidiary of the Company, TAP has entered into a JVA with PHSB for the purpose of setting up a Joint Venture Company, (hereinafter referred to as “JVC”) to be incorporated by the Company and PHSB under the Companies Act 1965 and jointly owned by the parties to implement an oil palm development project (hereinafter referred to as “the Project”) in partnership with the Sarawak State Government and Native landowners (hereinafter referred to as “NCR Owners”) over the parcels of NCR land situated at Durin, Sibu Division, Sarawak containing a gross area of 4,280.2 hectares (hereinafter referred to as “the said Land”).
PARTIES
PHSB
PHSB is a subsidiary of PELITA (Land Custody and Development Authority), a statutory body under the Ministry of Rural and Land Development, Sarawak.
NCR Owners
The NCR Owners are the natives who are in occupation of and having Native Customary Rights (NCR) over the said Land.
TERMS OF THE JVA
Equity Structure
The equity structure of the JVC will be as follows:
Party Percentage of holdings
TA ANN 60%
NCR Owners 30%
PHSB 10%
PHSB’s Role in the JVC
PHSB shall arrange to carry out the Environmental Impact Assessment (EIA) Study for the Project, prepare the necessary EIA Report and to submit the report to and for approval by the Natural Resource and Environmental Board (NREB), Sarawak.
PHSB will apply to the relevant authorities for the alienation of the said Land to the JVC and will ensure that the application be expeditiously approved in the interest of the viability of the Project.
PHSB will also be responsible for initiating and facilitating the process of sorting out land matters relating to NCR Owners involved in the JVC.
TAP’s Role in the JVC
TAP shall set up a team of competent and professional personnel to develop and manage the Project. TA ANN will provide other assistance to the JVC as may be necessary including but not limited to the sourcing of funds for the Project and providing such necessary support if required from other members of Ta Ann Group (hereinafter referred to as “the Group”).
SOURCE OF FUNDS
TAP’s participation in the proposed JVC will be financed through the Group’s internally generated funds.
RATIONALE FOR THE PROPOSED JVA
The JVA will enable the Group to further expand its total acreage of oil palm plantations. This is in line with the Group’s aim of continually growing its oil palm division to achieve greater economies of scale and to broaden its earnings base.
The participation of PHSB and the NCR Owners will enhance the viability of the Project. PHSB has vast experience in facilitating joint ventures between private sector investors and native land owners. It is also well versed in the procedural requirements for the implementation of such projects.
The NCR Owners’ participation will ensure there is ample and suitable land for the implementation of the Project. It will also improve the potential returns of the JVC as there will be no initial cost for the purchase of land.
FINANCIAL EFFECTS OF THE PROPOSED JVA
Earnings
The proposed JVA is not expected to contribute to the earnings of TA ANN for financial year ending 31 December 2008. However it is expected to contribute positively in the future years.
Net Assets, Share Capital and Substantial Shareholders’ Shareholdings
The proposed JVA is not expected to have significant effects on the net assets of TA ANN for financial year ending 31 December 2008. The proposed joint venture does not have any effect on the share capital and shareholding structure of TA ANN for financial year ending 31 December 2008.
DIRECTORS AND SUBSTANTIAL SHAREHOLDERS’ INTEREST
None of the directors and / or substantial shareholders of TA ANN and / or any persons connected to them have any interest, direct or indirect in the JVA.
DIRECTORS’ STATEMENT
The Directors of TA ANN are of the opinion that the proposed JVA is in the best interest of the Company and the Group.
This announcement is dated 25th April 2008.
© 2008, Bursa Malaysia Berhad. All Rights Reserved.
19 July 2008
The grass is no longer green
Downgrade from overweight to underweight
Downgrade to UNDERWEIGHT. For the first time in three years, we are turning negative on the plantation sector. Given the rising regulatory risks and slowing earnings momentum, we can no longer justify the large P/E premium accorded to the sector and downgrade it from Overweight to UNDERWEIGHT. Key de-rating catalysts are the softening CPO price outlook, lower crude oil price and higherthan- expected operating costs.
Regulatory risks underestimated by market. Regulatory risks for the sector have increased, which could limit earnings leverage to CPO price. If CPO prices continue to head higher, governments may levy higher taxes on planters to rein in inflation. There is also an increasing risk that biofuel targets may be scaled back.
Rising cost environment. Cost pressures on planters are on the rise as fertiliser price has more than doubled YTD. From our recent checks with Malaysian plantation companies, we gathered that fertiliser costs, which make up 20-30% of estate operating costs, have almost doubled YTD, adding around RM200-300 or 20-30% to the per tonne cost of production for CPO.
CPO price to peak this year. We think that CPO price will most likely peak in 2008 as the high prices in the past three years have spurred new plantings of oilseeds and curbed demand growth in low-income countries.
Cutting target prices across the board. We are cutting our earnings forecasts for all the planters under our coverage by 2-20% to account for higher operating costs and recent changes in windfall tax. We have also slashed our target prices by 12-39% to account for a lower target P/E and weaker earnings prospects.
Recommendation changes. In Malaysia, we are downgrading IOI Corp and KLK from Neutral to UNDERPERFORM while Hap Seng Plantations and Asiatic are cut from Outperform to NEUTRAL. Sime Darby remain an OUTPERFORM and our top pick for Malaysia. In Singapore, we have cut Wilmar from Outperform to NEUTRAL while reduced Golden Agri from Trading Buy to NEUTRAL and Indofood Agri from Outperform to UNDERPERFORM. In Indonesia, we have cut London Sumatra and Bakrie Sumatra from Outperform to UNDERPERFORM and reducing Sampoerna Agro from Outperform to NEUTRAL while maintaining an UNDERPERFORM on Astra Agro.
Sector comparisons
Background
Bullish on the sector for three years. We have been actively promoting the plantation sector for more than three years now (see sector update dated 11 July 2005) as we believed then that we were at the start of a CPO price upcycle. Along the way, we predicted that the price cycle would last longer than previous cycles due to the structural change in demand arising from biofuel and US transfat labelling issues. These have all panned out, thanks partly to record crude oil prices, some governments’ aggressive biofuel targets and adverse weather in some key planting regions.
Share prices have significantly outperformed the market. Over the past three years, the planters have been blessed with a perfect storm, i.e. the combination of positive structural changes in demand, supply deficits due to weather woes and favourable equity market conditions. As a result, plantation share prices hit new highs. The plantation stocks that we cover in Malaysia and Indonesia have delivered absolute returns of more than 600% over the past three years (refer to Figure 1 & 2). Singapore planters under coverage have also chalked up absolute returns of 30-106% since Feb 2007, when IndoAgri was listed (refer to Figure 3). The rising CPO price coupled with M&A activities have helped to propel some plantation stocks in Malaysia and Singapore to the ranks of the top five largest stocks by market capitalisation.
Figure 1: Share price performance of Malaysian planters against KLCI index from July 2005
Figure 2: Share price performance of Indonesian planters against JCI index from July 2005
Figure 3: Share price performance of Singapore planters against FSSTI index from Feb 2007
Reality check. Recently, we have come to the realisation that our overweight call on the sector is increasingly tenuous given the heightening regulatory risks, which could limit plantation companies’ earnings leverage to CPO price. We are of the opinion that it will be increasingly difficult for producers to pass on any increase in taxes to consumers when CPO output is increasing and inventories are building up. This, coupled with the three-fold rise in certain fertiliser prices from a year ago, will be a drag on plantation earnings in 2009. The P/E gap between the planters and the market has also widened due to the significant de-rating of regional markets over the past three months. The wide P/E rating may not be sustainable given our expectation of a decline in plantation earnings in 2009 due to lower selling prices and higher operating costs. In this note, we reassess the sector’s fundamentals for 2H08 and 2009.
Regulatory risks
Although regulatory issues are not new to the plantation sector, we believe that the market has not fully priced in this risk. We think that the plantation sector has reached a tipping point in terms of regulatory risk and this may limit planters’ earnings leverage to CPO price. Below, we discuss recent concerns and the potential impact of these regulatory risks on CPO price and earnings prospects.
Risks of higher export tax? In mid-Jun 07, the Indonesian government started raising the CPO export tax from 1.5% to 6.5%. Due to the low export price at that time, the additional tax worked out to be only US$26.5/tonne for CPO. In Sep 07, the government decided to impose a progressive tax of up to 10% to replace the flat export tax of 6.5% on CPO. In Feb 08, the export tax was raised from 10% to 25%, when international prices exceeded US$1,100 per tonne. Due to tight supply, the planters have at times been able to pass on the higher tax rate to consumers, translating into higher CPO prices in the international market.
However, we believe that it will become increasingly more difficult for producers to pass on the higher taxes in view of rising supply and high palm oil inventory in Malaysia. This means that future tax increases may have to be increasingly borne by the Indonesian producers. If CPO price continues to climb higher, there is a high possibility that the Indonesian government will raise the export tax rate. Furthermore, due to the current progressive export tax regime, when CPO price is in the US$1,100- 1,300 range, Indonesian planters do not gain from higher prices but have to bear fully the rise in operating costs.
Recently, the Indonesian government indicated that it is planning to revise the export tax to maximise revenue. It may narrow the range of base prices and tax rates so that the tax does not fluctuate wildly every month. Currently, export tax for palm oil products is adjusted every month according to movements in international price. Worst-case scenario, this could mean a flat export tax of 25% even at a lower CPO price range. This would be negative for planters.
Figure 4: Historical CPO export tax in Indonesia
Figure 5: Indonesia’s current export tax schedule for palm products
Windfall tax may rise with crude oil price? Effective 1 July 2008, the Malaysian government imposed a windfall tax to replace the cooking oil stabilisation scheme (COSS). The new taxes translate into a higher CPO tax for Peninsular Malaysia estates and lower tax collection from east Malaysian estates. There were subsequent modifications to the formula to exclude smallholders and to levy the tax on FFB instead of CPO and CPKO. Overall, the earnings impact on planters is not very significant at the current price. However, under the new tax formula, the Peninsular Malaysia players will be significantly worse off than the East Malaysian players if CPO prices rise (see Figure 6).
We continue to hold the view that the government is unlikely to raise windfall tax on CPO in the immediate term provided that crude oil price remains at the current price range. If crude oil price rallies to a new high in 2H08 and stays elevated, it may put more strain on the Malaysian government’s budget given that petrol price in Malaysia is subsidised at a crude oil price of around US$120/barrel. The government may have to tap other sources for revenue to fund the higher subsidies and this may raise the risk of higher windfall taxes on Malaysian planters.
Figure 6: Comparing new and old windfall tax schemes at various CPO prices
Biofuel policy at risk. Biofuel appears to be at the losing end in the food vs. fuel debate as it is increasingly being fingered as the key culprit in the rise of food prices. Recently, the Guardian newspaper uncovered a World Bank draft internal report, which estimated that the drive for biofuels has pushed food prices up 75%, in sharp contrast to the US state secretary’s claim of a rise of only 2-3%.
The implication is that biofuel will increasingly be viewed by the world as the chief cause of food riots, starvation and high inflation around the world. This may prompt governments around the world to curtail their biofuel targets, thereby reducing the growth in edible oils for energy usage.
It was reported that during the recent G-8 meeting in Japan, most prime ministers stated that a downward revision of biofuel targets is needed to bring down food inflation. Within the European governments, there is also increasing resistance to biofuel. In a recent vote, the environment committee in Europe requested that the share of biofuels in total transport fuel be lowered to around 5-6% in 2020 from the previous goal of 10%. Under this scenario, the demand growth prospects for edible oils will not be as rosy as earlier expected and this may dampen CPO price upside and sentiment.
Figure 7: Share of biofuel in edible oils consumption
----------------------------------------
Food and others 94%
Biodiesel 6%
----------------------------------------
Operating costs on the rise
Rising cost environment. Cost pressures on planters are on the rise as fertiliser price has more than doubled YTD. From our recent checks with Malaysian plantation companies, we gathered that fertiliser costs, which make up 20-30% of estate operating costs, have almost doubled YTD, adding around RM200-300 or 20-30% to the average per tonne cost of production for CPO, depending on the productivity of the estates.
Fertiliser, fuel and labour cost rising. The recent fuel price increase of 41% in Malaysia and 33% in Indonesia will raise transportation costs at estates as well as HQ costs. One planter estimated that this could raise its cost of production by as much as RM40-50 per tonne, which is equivalent to a cost increase of around 5%. However, other estate owners that we talked to have indicated a slightly lower cost increase. Bearing in mind the higher inflation rate, we also expect a higher rate of increase in labour costs, which make up 30-40% of operating costs. The bulk of the cost increases may not be felt in the current year as some planters have locked in at least half of this year’s fertiliser requirements at the rates prevailing at the beginning of the year.
Operating cost may rise as much as 30%, squeezing margin. All in all, we expect estates’ operating costs to rise by 20-30% in the current year and another 10-20% in the following year, assuming that fertiliser prices stay at around the current level. We are increasingly concerned about the cost pressures given that CPO prices are likely to peak this year and trend down next year. The combination of these factors will squeeze planters’ operating margins in 2H08 and 2009.
How are planters coping? All the listed planters we spoke to reveal that reducing fertiliser application is not an option as it could dampen future FFB yields of the estates. We understand that the planters are looking at more targeted application of fertiliser to reduce usage but this may increase labour costs marginally. Part of the increase in fertiliser costs could be absorbed by improved productivity at the estates.
Figure 8: Rising fertiliser prices (US$/tonne)
Figure 9: Rising fuel price in Malaysia
CPO price outlook remains intact
Expect average CPO price to peak in 2008. Our CPO price forecasts of US$1,105 (RM3,350 per tonne) for 2008 and US$1,090 (RM3,000 per tonne) for 2009 remain intact as CPO price still trades at an attractive discount of US$400 per tonne to its key competitor, soybean oil. Furthermore, consumption of edible oils is rising in China and India.
We are also maintaining our view that 3Q08 CPO price will be volatile and will trade within the RM3,000-3,600 range as rising demand ahead of festive events will offset the seasonally higher palm oil production season in Malaysia and Indonesia. We believe CPO price will most likely peak in 2008 as the high price in the past three years has spurred new plantings of oilseeds and curbed demand growth in lowincome countries. Our forecast of a crude oil price of US$120 per barrel in 2009 suggests that the current oil price of US$136 is unlikely to be sustained in the coming year, thus limiting the growth in demand for edible oils for energy usage.
Figure 10: CPO price forecasts
Figure 11: Widening price gap between palm and soya oil (US$ per tonne)
Valuation and recommendation
Lowering earnings estimates. We have re-looked at our earnings estimates for our universe of plantation stocks to account for higher fertiliser costs, fuel prices and Malaysia’s recent modification of windfall tax. Overall, we have lowered our EPS for listed planters under our coverage by 2-20%.
Earnings growth momentum to slow. We expect most planters to report lower earnings growth in FY09 as costs are expected to rise at a faster pace than selling price, resulting in lower margins. Overall, we expect the sector to report slower earnings growth in FY09.
… difficult to justify P/E premium over market. Over the past three years, we have been able to continuously justify a higher P/E rating for the plantation companies against the market in light of the rising CPO price and strong earnings growth momentum. However, we expect the earnings momentum to slow in the coming year. Furthermore, rising regulatory risk could limit the companies’ earnings leverage to future rises in CPO price. Hence, we find it increasingly difficult to justify the widening P/E premium, especially since the sector used to trade at a discount (see Figure 12).
Figure 12: Plantation P/E gap against market P/E
Lowering target P/E rating of planters. In view of the sharp de-rating of the equity markets, slowing earnings momentum and rising regulatory risks, we have scaled back our target P/Es by 1-4x though we continue to accord a premium P/E for the planters given the defensiveness of their earnings relative to other sectors. This has the effect of lowering our target prices by 12-39%.
Recommendation changes. In Malaysia, aside from policy risks and CPO price outlook, foreigners own substantial slices of the listed planters’ shares (see Figure 14). In view of the potential negatives, we are downgrading IOI Corp and KL Kepong from Neutral to UNDERPERFORM while cutting Hap Seng Plantations and Asiatic from Outperform to NEUTRAL. Sime Darby remain an OUTPERFORM and our top pick in Malaysia. We also advise investors to switch to stocks with high dividend yields. In Singapore, we have cut Wilmar from Outperform to NEUTRAL while reducing Golden Agri from Trading Buy to NEUTRAL and Indofood Agri from Outperform to UNDERPERFORM. In Indonesia, we have cut London Sumatra and Bakrie Sumatra from Outperform to UNDERPERFORM and reduced Sampoerna Agro from Outperform to NEUTRAL while maintaining an UNDERPERFORM on Astra Agro. We are also advising investors to switch from the plantation to the banking sector in Singapore and Indonesia.
Preferences within the sector. We continue to prefer Malaysian planters over their Indonesian counterparts in view of lower policy risks. However, our preference has shifted from pure planters to integrated or diversified planters whose earnings will be cushioned somewhat from CPO price declines. Among the purer planters, we prefer those which offer cost savings potential from mergers, i.e. Wilmar and Sime Darby.
Figure 13:
Figure 14: Foreign shareholding of Malaysian plantation stocks
Downgrade to UNDERWEIGHT. We are downgrading the sector from Overweight to UNDERWEIGHT owing to concerns over rising regulatory risks, slowing earnings momentum and the weak equity market. In view of these concerns, we can no longer justify the current large premium P/E rating accorded to the sector. Key de-rating catalysts are the softening CPO price outlook, lower crude oil price and higher-thanexpected operating costs.
Risks to our call. Adverse weather developments in key planting areas, higher crude oil price and more favourable biofuel policy could lead to higher-than-expected CPO prices. However, part of the CPO price increase will have to go towards covering higher fertiliser costs of at least US$60 per tonne of CPO and about US$10-30 per tonne increase in other operating costs in 2009. We are also of the view that we have reached a tipping point where any advances in CPO price would attract higher regulatory risks due to the inflationary concerns. Also, for planters to sustain the earnings growth momentum of the past two years, CPO price would need to increase by around US$300 per tonne (the average increase over the past two years), suggesting that CPO price would need to average around US$1,345 (RM4,300) per tonne for 2009, which we believe is a tall order.
filed: The grass is no longer green.pdf
Downgrade to UNDERWEIGHT. For the first time in three years, we are turning negative on the plantation sector. Given the rising regulatory risks and slowing earnings momentum, we can no longer justify the large P/E premium accorded to the sector and downgrade it from Overweight to UNDERWEIGHT. Key de-rating catalysts are the softening CPO price outlook, lower crude oil price and higherthan- expected operating costs.
Regulatory risks underestimated by market. Regulatory risks for the sector have increased, which could limit earnings leverage to CPO price. If CPO prices continue to head higher, governments may levy higher taxes on planters to rein in inflation. There is also an increasing risk that biofuel targets may be scaled back.
Rising cost environment. Cost pressures on planters are on the rise as fertiliser price has more than doubled YTD. From our recent checks with Malaysian plantation companies, we gathered that fertiliser costs, which make up 20-30% of estate operating costs, have almost doubled YTD, adding around RM200-300 or 20-30% to the per tonne cost of production for CPO.
CPO price to peak this year. We think that CPO price will most likely peak in 2008 as the high prices in the past three years have spurred new plantings of oilseeds and curbed demand growth in low-income countries.
Cutting target prices across the board. We are cutting our earnings forecasts for all the planters under our coverage by 2-20% to account for higher operating costs and recent changes in windfall tax. We have also slashed our target prices by 12-39% to account for a lower target P/E and weaker earnings prospects.
Recommendation changes. In Malaysia, we are downgrading IOI Corp and KLK from Neutral to UNDERPERFORM while Hap Seng Plantations and Asiatic are cut from Outperform to NEUTRAL. Sime Darby remain an OUTPERFORM and our top pick for Malaysia. In Singapore, we have cut Wilmar from Outperform to NEUTRAL while reduced Golden Agri from Trading Buy to NEUTRAL and Indofood Agri from Outperform to UNDERPERFORM. In Indonesia, we have cut London Sumatra and Bakrie Sumatra from Outperform to UNDERPERFORM and reducing Sampoerna Agro from Outperform to NEUTRAL while maintaining an UNDERPERFORM on Astra Agro.
Sector comparisons
Background
Bullish on the sector for three years. We have been actively promoting the plantation sector for more than three years now (see sector update dated 11 July 2005) as we believed then that we were at the start of a CPO price upcycle. Along the way, we predicted that the price cycle would last longer than previous cycles due to the structural change in demand arising from biofuel and US transfat labelling issues. These have all panned out, thanks partly to record crude oil prices, some governments’ aggressive biofuel targets and adverse weather in some key planting regions.
Share prices have significantly outperformed the market. Over the past three years, the planters have been blessed with a perfect storm, i.e. the combination of positive structural changes in demand, supply deficits due to weather woes and favourable equity market conditions. As a result, plantation share prices hit new highs. The plantation stocks that we cover in Malaysia and Indonesia have delivered absolute returns of more than 600% over the past three years (refer to Figure 1 & 2). Singapore planters under coverage have also chalked up absolute returns of 30-106% since Feb 2007, when IndoAgri was listed (refer to Figure 3). The rising CPO price coupled with M&A activities have helped to propel some plantation stocks in Malaysia and Singapore to the ranks of the top five largest stocks by market capitalisation.
Figure 1: Share price performance of Malaysian planters against KLCI index from July 2005
Figure 2: Share price performance of Indonesian planters against JCI index from July 2005
Figure 3: Share price performance of Singapore planters against FSSTI index from Feb 2007
Reality check. Recently, we have come to the realisation that our overweight call on the sector is increasingly tenuous given the heightening regulatory risks, which could limit plantation companies’ earnings leverage to CPO price. We are of the opinion that it will be increasingly difficult for producers to pass on any increase in taxes to consumers when CPO output is increasing and inventories are building up. This, coupled with the three-fold rise in certain fertiliser prices from a year ago, will be a drag on plantation earnings in 2009. The P/E gap between the planters and the market has also widened due to the significant de-rating of regional markets over the past three months. The wide P/E rating may not be sustainable given our expectation of a decline in plantation earnings in 2009 due to lower selling prices and higher operating costs. In this note, we reassess the sector’s fundamentals for 2H08 and 2009.
Regulatory risks
Although regulatory issues are not new to the plantation sector, we believe that the market has not fully priced in this risk. We think that the plantation sector has reached a tipping point in terms of regulatory risk and this may limit planters’ earnings leverage to CPO price. Below, we discuss recent concerns and the potential impact of these regulatory risks on CPO price and earnings prospects.
Risks of higher export tax? In mid-Jun 07, the Indonesian government started raising the CPO export tax from 1.5% to 6.5%. Due to the low export price at that time, the additional tax worked out to be only US$26.5/tonne for CPO. In Sep 07, the government decided to impose a progressive tax of up to 10% to replace the flat export tax of 6.5% on CPO. In Feb 08, the export tax was raised from 10% to 25%, when international prices exceeded US$1,100 per tonne. Due to tight supply, the planters have at times been able to pass on the higher tax rate to consumers, translating into higher CPO prices in the international market.
However, we believe that it will become increasingly more difficult for producers to pass on the higher taxes in view of rising supply and high palm oil inventory in Malaysia. This means that future tax increases may have to be increasingly borne by the Indonesian producers. If CPO price continues to climb higher, there is a high possibility that the Indonesian government will raise the export tax rate. Furthermore, due to the current progressive export tax regime, when CPO price is in the US$1,100- 1,300 range, Indonesian planters do not gain from higher prices but have to bear fully the rise in operating costs.
Recently, the Indonesian government indicated that it is planning to revise the export tax to maximise revenue. It may narrow the range of base prices and tax rates so that the tax does not fluctuate wildly every month. Currently, export tax for palm oil products is adjusted every month according to movements in international price. Worst-case scenario, this could mean a flat export tax of 25% even at a lower CPO price range. This would be negative for planters.
Figure 4: Historical CPO export tax in Indonesia
Figure 5: Indonesia’s current export tax schedule for palm products
Windfall tax may rise with crude oil price? Effective 1 July 2008, the Malaysian government imposed a windfall tax to replace the cooking oil stabilisation scheme (COSS). The new taxes translate into a higher CPO tax for Peninsular Malaysia estates and lower tax collection from east Malaysian estates. There were subsequent modifications to the formula to exclude smallholders and to levy the tax on FFB instead of CPO and CPKO. Overall, the earnings impact on planters is not very significant at the current price. However, under the new tax formula, the Peninsular Malaysia players will be significantly worse off than the East Malaysian players if CPO prices rise (see Figure 6).
We continue to hold the view that the government is unlikely to raise windfall tax on CPO in the immediate term provided that crude oil price remains at the current price range. If crude oil price rallies to a new high in 2H08 and stays elevated, it may put more strain on the Malaysian government’s budget given that petrol price in Malaysia is subsidised at a crude oil price of around US$120/barrel. The government may have to tap other sources for revenue to fund the higher subsidies and this may raise the risk of higher windfall taxes on Malaysian planters.
Figure 6: Comparing new and old windfall tax schemes at various CPO prices
Biofuel policy at risk. Biofuel appears to be at the losing end in the food vs. fuel debate as it is increasingly being fingered as the key culprit in the rise of food prices. Recently, the Guardian newspaper uncovered a World Bank draft internal report, which estimated that the drive for biofuels has pushed food prices up 75%, in sharp contrast to the US state secretary’s claim of a rise of only 2-3%.
The implication is that biofuel will increasingly be viewed by the world as the chief cause of food riots, starvation and high inflation around the world. This may prompt governments around the world to curtail their biofuel targets, thereby reducing the growth in edible oils for energy usage.
It was reported that during the recent G-8 meeting in Japan, most prime ministers stated that a downward revision of biofuel targets is needed to bring down food inflation. Within the European governments, there is also increasing resistance to biofuel. In a recent vote, the environment committee in Europe requested that the share of biofuels in total transport fuel be lowered to around 5-6% in 2020 from the previous goal of 10%. Under this scenario, the demand growth prospects for edible oils will not be as rosy as earlier expected and this may dampen CPO price upside and sentiment.
Figure 7: Share of biofuel in edible oils consumption
----------------------------------------
Food and others 94%
Biodiesel 6%
----------------------------------------
Operating costs on the rise
Rising cost environment. Cost pressures on planters are on the rise as fertiliser price has more than doubled YTD. From our recent checks with Malaysian plantation companies, we gathered that fertiliser costs, which make up 20-30% of estate operating costs, have almost doubled YTD, adding around RM200-300 or 20-30% to the average per tonne cost of production for CPO, depending on the productivity of the estates.
Fertiliser, fuel and labour cost rising. The recent fuel price increase of 41% in Malaysia and 33% in Indonesia will raise transportation costs at estates as well as HQ costs. One planter estimated that this could raise its cost of production by as much as RM40-50 per tonne, which is equivalent to a cost increase of around 5%. However, other estate owners that we talked to have indicated a slightly lower cost increase. Bearing in mind the higher inflation rate, we also expect a higher rate of increase in labour costs, which make up 30-40% of operating costs. The bulk of the cost increases may not be felt in the current year as some planters have locked in at least half of this year’s fertiliser requirements at the rates prevailing at the beginning of the year.
Operating cost may rise as much as 30%, squeezing margin. All in all, we expect estates’ operating costs to rise by 20-30% in the current year and another 10-20% in the following year, assuming that fertiliser prices stay at around the current level. We are increasingly concerned about the cost pressures given that CPO prices are likely to peak this year and trend down next year. The combination of these factors will squeeze planters’ operating margins in 2H08 and 2009.
How are planters coping? All the listed planters we spoke to reveal that reducing fertiliser application is not an option as it could dampen future FFB yields of the estates. We understand that the planters are looking at more targeted application of fertiliser to reduce usage but this may increase labour costs marginally. Part of the increase in fertiliser costs could be absorbed by improved productivity at the estates.
Figure 8: Rising fertiliser prices (US$/tonne)
Figure 9: Rising fuel price in Malaysia
CPO price outlook remains intact
Expect average CPO price to peak in 2008. Our CPO price forecasts of US$1,105 (RM3,350 per tonne) for 2008 and US$1,090 (RM3,000 per tonne) for 2009 remain intact as CPO price still trades at an attractive discount of US$400 per tonne to its key competitor, soybean oil. Furthermore, consumption of edible oils is rising in China and India.
We are also maintaining our view that 3Q08 CPO price will be volatile and will trade within the RM3,000-3,600 range as rising demand ahead of festive events will offset the seasonally higher palm oil production season in Malaysia and Indonesia. We believe CPO price will most likely peak in 2008 as the high price in the past three years has spurred new plantings of oilseeds and curbed demand growth in lowincome countries. Our forecast of a crude oil price of US$120 per barrel in 2009 suggests that the current oil price of US$136 is unlikely to be sustained in the coming year, thus limiting the growth in demand for edible oils for energy usage.
Figure 10: CPO price forecasts
Figure 11: Widening price gap between palm and soya oil (US$ per tonne)
Valuation and recommendation
Lowering earnings estimates. We have re-looked at our earnings estimates for our universe of plantation stocks to account for higher fertiliser costs, fuel prices and Malaysia’s recent modification of windfall tax. Overall, we have lowered our EPS for listed planters under our coverage by 2-20%.
Earnings growth momentum to slow. We expect most planters to report lower earnings growth in FY09 as costs are expected to rise at a faster pace than selling price, resulting in lower margins. Overall, we expect the sector to report slower earnings growth in FY09.
… difficult to justify P/E premium over market. Over the past three years, we have been able to continuously justify a higher P/E rating for the plantation companies against the market in light of the rising CPO price and strong earnings growth momentum. However, we expect the earnings momentum to slow in the coming year. Furthermore, rising regulatory risk could limit the companies’ earnings leverage to future rises in CPO price. Hence, we find it increasingly difficult to justify the widening P/E premium, especially since the sector used to trade at a discount (see Figure 12).
Figure 12: Plantation P/E gap against market P/E
Lowering target P/E rating of planters. In view of the sharp de-rating of the equity markets, slowing earnings momentum and rising regulatory risks, we have scaled back our target P/Es by 1-4x though we continue to accord a premium P/E for the planters given the defensiveness of their earnings relative to other sectors. This has the effect of lowering our target prices by 12-39%.
Recommendation changes. In Malaysia, aside from policy risks and CPO price outlook, foreigners own substantial slices of the listed planters’ shares (see Figure 14). In view of the potential negatives, we are downgrading IOI Corp and KL Kepong from Neutral to UNDERPERFORM while cutting Hap Seng Plantations and Asiatic from Outperform to NEUTRAL. Sime Darby remain an OUTPERFORM and our top pick in Malaysia. We also advise investors to switch to stocks with high dividend yields. In Singapore, we have cut Wilmar from Outperform to NEUTRAL while reducing Golden Agri from Trading Buy to NEUTRAL and Indofood Agri from Outperform to UNDERPERFORM. In Indonesia, we have cut London Sumatra and Bakrie Sumatra from Outperform to UNDERPERFORM and reduced Sampoerna Agro from Outperform to NEUTRAL while maintaining an UNDERPERFORM on Astra Agro. We are also advising investors to switch from the plantation to the banking sector in Singapore and Indonesia.
Preferences within the sector. We continue to prefer Malaysian planters over their Indonesian counterparts in view of lower policy risks. However, our preference has shifted from pure planters to integrated or diversified planters whose earnings will be cushioned somewhat from CPO price declines. Among the purer planters, we prefer those which offer cost savings potential from mergers, i.e. Wilmar and Sime Darby.
Figure 13:
Figure 14: Foreign shareholding of Malaysian plantation stocks
Downgrade to UNDERWEIGHT. We are downgrading the sector from Overweight to UNDERWEIGHT owing to concerns over rising regulatory risks, slowing earnings momentum and the weak equity market. In view of these concerns, we can no longer justify the current large premium P/E rating accorded to the sector. Key de-rating catalysts are the softening CPO price outlook, lower crude oil price and higher-thanexpected operating costs.
Risks to our call. Adverse weather developments in key planting areas, higher crude oil price and more favourable biofuel policy could lead to higher-than-expected CPO prices. However, part of the CPO price increase will have to go towards covering higher fertiliser costs of at least US$60 per tonne of CPO and about US$10-30 per tonne increase in other operating costs in 2009. We are also of the view that we have reached a tipping point where any advances in CPO price would attract higher regulatory risks due to the inflationary concerns. Also, for planters to sustain the earnings growth momentum of the past two years, CPO price would need to increase by around US$300 per tonne (the average increase over the past two years), suggesting that CPO price would need to average around US$1,345 (RM4,300) per tonne for 2009, which we believe is a tall order.
filed: The grass is no longer green.pdf
18 July 2008
15-07-2008: PPB an attractive agribusiness play
PPB Group Bhd is poised to benefit from growing food demand, given its established presence as the country’s largest sugar and flour miller, HwangDBS Vickers Research said yesterday when maintaining a buy recommendation on the stock.
The company, it said, is on track to deliver a projected FY2008-FY2010 net profit CAGR (compound annual growth rate) of 17%, supported by associate contribution from Singapore Exchange-listed Wilmar International Ltd as well as profits from the sale of sugar and flour.
In addition, as PPB’s current market capitalisation reflected only its 18% stake in Wilmar, HwangDBS said investors are “getting non-Wilmar assets for free”. These non-Wilmar assets include the largest flour miller and sugar refiner in Malaysia, the research house added.
“Wilmar accounts for 79% and 77% of PPB’s FY08-09F net profit. Wilmar’s prospects remain promising despite the softening commodity prices because it has strengthened its position in China’s oilseeds crushing segment and the consumer pack cooking oil market by gaining share from smaller, less efficient players,” it said.
“We continue to like PPB Group for its agribusiness growth, attractive valuations and upside from Wilmar,” HwangDBS added.
PPB, it said, is trading at an attractive 11 times FY2009 earnings against Wilmar’s 17 times and Malaysia’s large-cap plantation sector average of 14 times.
HwangDBS has a RM13.40 target price for PPB Group, derived from a sum-of-parts valuation which assumes Wilmar’s fair value at S$4.70 (RM11.20) per share, having imputed a 20% holding company discount to Wilmar’s target price of S$5.85 per share.
“Looking ahead, we expect sustainable net DPS (dividend per share) of 30 sen and 31 sen (net yield of 3%) for FY08-09F based on dividend from Wilmar and PPB’s planned FY08-09F capital expenditure (capex) of RM300 million,” it said. On May 12, PPB paid a special gross dividend of 62 sen per share.
The planned capex includes RM104 million for sugar refining and production facilities, RM150 million for flour operations and RM43 million for new cinema screens.
“We understand that PPB may want to acquire a larger stake in Wilmar if valuations are attractive and PPB’s cashflow is adequate,” the research house added. PPB fell 15 sen to close at RM9.55 yesterday.
Chin: Windfall tax exemption from July 15
By Lim How Pim
KUCHING: Operators of oil palm plantations of less than 100 acres in size will be exempted from the windfall levy tax starting July 15.
Plantation Industries and Commodities Minister Datuk Peter Chin Fah Kui said this was decided at Friday’s federal cabinet meeting following several appeals from oil palm smallholders.
The smallholders had appealed through their respective Barisan Nasional (BN) MPs and to his ministry as well as the Ministry of Finance in view of rising operation costs, he told reporters after attending Sarawak United People’s Party (SUPP) central working committee (CWC) meeting at the party’s headquarters here yesterday.
Chin believed that the decision was good news to oil palm smallholders throughout the country as many of them had complained about the soaring costs of fertiliser, pesticides and labour.
The windfall levy tax which is based on the price of crude palm oil (CPO) is 7.5 per cent for Sabah and Sarawak and 15 per cent for Peninsular Malaysia, he said.
He pointed out that larger plantations normally had bigger harvests which helped bring down operation costs by way of economies of scale.
“With bigger volume they still make some money after tax,” he said, adding that the exemption would bring about ‘new development’ to the state, particularly the northern part like Bintulu.
There were between 25,000 and 30,000 small oil palm plantations in Sarawak and 400,000 nationwide with the majority of in Sabah.
KUCHING: Operators of oil palm plantations of less than 100 acres in size will be exempted from the windfall levy tax starting July 15.
Plantation Industries and Commodities Minister Datuk Peter Chin Fah Kui said this was decided at Friday’s federal cabinet meeting following several appeals from oil palm smallholders.
The smallholders had appealed through their respective Barisan Nasional (BN) MPs and to his ministry as well as the Ministry of Finance in view of rising operation costs, he told reporters after attending Sarawak United People’s Party (SUPP) central working committee (CWC) meeting at the party’s headquarters here yesterday.
Chin believed that the decision was good news to oil palm smallholders throughout the country as many of them had complained about the soaring costs of fertiliser, pesticides and labour.
The windfall levy tax which is based on the price of crude palm oil (CPO) is 7.5 per cent for Sabah and Sarawak and 15 per cent for Peninsular Malaysia, he said.
He pointed out that larger plantations normally had bigger harvests which helped bring down operation costs by way of economies of scale.
“With bigger volume they still make some money after tax,” he said, adding that the exemption would bring about ‘new development’ to the state, particularly the northern part like Bintulu.
There were between 25,000 and 30,000 small oil palm plantations in Sarawak and 400,000 nationwide with the majority of in Sabah.
17 July 2008
Subscribe to:
Posts (Atom)