Price RM5.45
Market capitalization RM4,116 million
insider asia Analyst Linda Koh
2QFYDec2008 Results
Higher average CPO prices in 2Q08
But rising costs keep profits flattish q-q
Outlook for palm oil prices uncertain
Fairly valued at P/E of 10.2x 2008
Key stock statistics
----------2007 2008E
EPS (sen) 45.6 53.4
P/E (x) 12.0 10.2
DPS (sen) 14.0 15.0
NTA/share (RM) 2.71 3.14
Issued capital (mil) 756.3
52-week price range (RM) 5.25-9.40
Major shareholders (%)
Genting 55%
EPF 7.4%
Share Price Chart
Asiatic Development’s earnings in 2QFYDec08 were broadly in line with expectations. Sales were up 67% y-y at RM321.9 million while pre-tax profit grew 68% y-y to RM157.6 million on the back of robust plantation earnings. Net profit was up by a lesser 53% y-y due to a higher effective tax rate.
Plantation was the key growth driver – its sales accounted for 90% of total sales for the company with the remaining 10% coming from property. The percentage contribution in terms of earnings before interest and taxes (EBIT) was even higher. Plantation EBIT stood at RM133.5 million in 1Q08 and RM153.7 million in 2Q08, or roughly 97% of total EBIT (excluding unallocated expenses) in 1H08.
The sharply higher plantation earnings were due to both higher crude palm oil (CPO) prices as well as fresh fruit bunches (FFB) output.
CPO selling prices averaged at about RM3,534 per tonne in 2Q08 compared to just RM2,408 per tonne in the previous corresponding quarter and RM3,403 in 1Q08. FFB output in 2Q08 was some 8% higher y-y at 288,727 tonnes.
However, margins were slightly lower compared to the preceding quarter. This is due to higher production costs, estimated at about RM1,050 per tonne compared to about RM870 per tonne in 1Q08, as a result of increased manuring activities during the quarter.
Asiatic has already locked-in its fertilizer requirements for the year. Hence, it should not be affected by further price increases this year. In fact, production costs should be slightly lower in 2H08. On average, we estimate costs will rise to about RM900-RM950 per tonne in 2008, up from less than RM800 per tonne last year.
The stronger earnings boosted net cash to RM618.1 million, up from RM495.1 million at end-2007. Asiatic declared an interim dividend of 5 sen per share less tax, up from 3.25 sen per share in 2Q07. Its shares will trade ex-entitlement 26 September.
Outlook and Recommendation
We expect Asiatic to report lower earnings in 2H08 following the sharp pullback in CPO prices.
After having traded around RM3,500 per tonne for much of 1H08, price movements have turned very volatile in recent weeks. CPO prices tumbled sharply in mid-July, triggered by falling crude oil prices.
Crude oil futures traded on the New York Mercantile Exchange fell from a record high of US$147 per barrel and is currently hovering around US$117 per barrel on expectations of slower global demand.
Cheaper crude oil prices translates into less financial incentive to produce alternative biofuel, for which corn and other oilseeds including CPO are used as feedstock.
However, the fall in CPO prices have, at times, been even sharper. The benchmark futures contracts traded on the Bursa Derivatives fell briefly below RM2,400 per tonne in August, compared to record high of RM4,486 per tonne in early March. Currently, CPO is trading around RM2,500 per tonne.
The additional downward pressure could be attributed, in part, to improved global crop production outlook with more favourable weather conditions. The recovery in stockpiles for many edible oils has weakened prices.
For instance, Malaysia’s production of CPO has been rising at a faster pace than demand, so far this year. CPO output up to July increased by some 21% y-y to 9.76 million tonnes. Exports, on the other hand, have grown by a lesser 16% y-y to 8.33 million tonnes during the same period.
As a result, stockpiles have grown – to as high as 2 million tonnes in June. Stock levels were pared back slightly to 1.98 million tonnes in July on the back of higher exports.
Despite preliminary estimates of further increase in exports in the month of August, sentiment for CPO has remained bearish. The high volatility in prices has limited visibility in the near term.
CPO prices will depend on the direction of crude oil prices, weather conditions that could affect planting and harvests as well as the strength in demand going forward.
Asiatic sells its CPO in the spot market. Thus, the drop in CPO prices will hurt earnings in 2H08.
We have previously lowered our average selling prices for the year to RM3,100 per tonne. CPO prices averaged at around RM3,450 per tonne in July and the company has some deliveries spillover in August. Hence the sharper earnings fall will be felt in 4Q08, if current prices prevail. Net profit for the year is estimated at roughly RM404.2 million.
We are keeping our forward CPO price assumption at RM2,800 per tonne, for now, pending improved clarity. Net profit is expected to decline to about RM350 million in 2009.
For the moment, Asiatic shares appear fairly valued at about 10.2 and 11.8 times our estimated earnings of 53.4 sen and 46.2 sen per share in 2008- 2009. We maintain our HOLD recommendation.
Profit & Loss Analysis
Per Share Data
No comments:
Post a Comment