KLK has full MSPO certification for upstream ops

KUALA LUMPUR, Jan 19 — Kuala Lumpur Kepong Bhd (KLK) said all its local upstream operations were certified as compliant with Malaysian Sustainable Palm Oil (MSPO) standards at the end of December 2017. The certification was received a year…

Potential u-turn ahead for plantation stocks

KUCHING: With crude palm oil (CPO) prices pegged to remain stable at RM2,400 per metric tonne (MT) in the first quarter of 2018, on the back of an anticipated robust demand and stocks levels picking up from February 2018 onwards, analysts see many signs for a recovery for the sector. Kenanga Investment Bank Bhd (Kenanga […]

Kenanga Research starts coverage of Sime Darby Plantation with ‘market perform’

PETALING JAYA: Kenanga Research has initiated coverage on Sime Darby Plantation Bhd with a “market perform” recommendation at a target price of RM5.50, on the account of the plantation giant’s market leadership position, emphasis on sustainable palm oil production, fresh fruit bunch (FFB) production recovery, research and development efforts and integrated operations.

The research house gave a 5% premium to Sime Darby Plantation’s forward price-to-earnings ratio (PER) at 26 times against the 25 times of average valuation given to its integrated peers, namely IOI Corp and Kuala Lumpur Kepong Bhd.

However, Kenanga Research said Sime Darby Plantation's high net gearing of 0.56 times may preclude mergers and acquisitions (M&As) and previous production setbacks have pushed up unit production cost.

With it being the largest plantation company (by planted area) and among top three in the world for milling capacity, FFB production and refining capacity as well as producing 4% of global palm oil production of which 98% is certified sustainable palm oil (CSPO), the research house said this affords the group a pricing premium of an estimated US$20/metric ton (MT) or more depending on oil grade.

In FY16-17, severe droughts had resulted in production being flat, which also led to slow earnings recovery and high production cost/MT.

However, going forward, yields are expected to improve in line with the industry of 8% for higher FY18-19 FFB production of 4%-7%.

Kenanga Research also highlighted that as an integrated planter with both upstream plantations and downstream manufacturing, Sime Darby Plantation’s earnings are less affected by crude palm oil (CPO) price movements as lower CPO prices lead to lower downstream feedstock cost, despite its CPO prices are expected to soften by 6%-10% to RM2,417-RM2,569 given sector wide production recovery.

Meanwhile, the research house said the group's “Mission 25:25” aim of producing FFB at 25MT/hectare and 25% oil extraction rate target by year 2025, is within reach with long-term productivity outlook looking positive, implying a compound annual growth rate (CAGR) of 6% per year based on its CPO production estimates.

“Our projections indicate the targets should be achievable, with estimated FFB yield of 24.6MT/ha and OER (oil extraction rate) of 24.8% by 2025 through the use of high-yield planting material and technological improvements.”

On dividend policy, Kenanga Research said Sime Darby Plantation's strong cash flow of between RM1.65 billion and RM1.7 billion for FY18-19 “should easily support” the management’s minimum dividend policy of 50%.

“Based on historical payout ratio (ex-FY17 which saw a large one-off land transaction boosting net profit) of 66%, we anticipate FY18-19E payout ratio at 65% for DPS (dividend per share) of 13.0-14.0 sen/share, which translates to a decent dividend yield of 2.4-2.6% (vs sector average of 2.6%).”

Sime Darby Plantation's share price gained 52 sen or 9.5% to close at RM6 last Friday on some 18.3 million shares done.

KLK to buy surfactant manufacturer in Netherlands for RM187.2 million

KUCHING: Kuala Lumpur Kepong Bhd (KLK) has announced its intention to acquire Elementis Specialties Nether B.V (ESN), a surfactant manufacturer in the Netherlands, for a total consideration of 39 million euros or RM187.2 million. The group made the announcement on Tuesday in a Bursa filing where they stated that their rationale for the acquisition is […]

Market Briefing, Wednesday

US Market : U.S. stocks rose on Tuesday amid growing optimism that Republican lawmakers would be able to revamp the corporate tax system. Wall Street also looked to the Federal Reserve as its two-day policy meeting kicked off. Europe Market : European stocks closed higher Tuesday, as investors monitored upcoming policy meetings from the U.S. Federal Reserve and the European Central Bank (ECB). Precious Metal Gold : Gold prices retreated to a near five-month low on Tuesday as investors braced for a widely expected U.S. interest rate increase this weekRead More

Stocks in Focus (13-12-2017)

KUALA LUMPUR (Dec 12): Based on corporate announcements and news flow today, stocks in focus on Wednesday (Dec 13) may include: Rhone Ma Holdings Bhd,…

KLK buys chemicals firm in Netherlands for RM187.2 million

PETALING JAYA: Kuala Lumpur Kepong Bhd (KLK) proposes to acquire Elementis Special Ties Netherlands B.V. (ESN) for an enterprise value of €39 million (RM187.2 million).

KLK told Bursa Malaysia that its wholly owned subsidiary Kolb Distribution AG had on December 11 entered into an agreement to acquire from Elementis B.V. its entire interest in ESN comprising 3,404 ordinary shares of nominal value €1,000 each, together with its working capital, assets and business associated with its surfactant chemicals business at ESN's 1.62 ha site at Delden, the Netherlands.

ESN manufactures surfactant and a range of products sold by its specialty products division.

KLK said the Delden site will expand the existing Kolb business portfolio in terms of product range and market coverage.

“The use of the Delden site as another hub for KLK's market penetration strategy will further accelerate growth in the group's downstream chemical specialties business in Europe.”

KLK added that ESN comes with a large established customer base and is expected to generate benefits to the group's chemical business.

“Upon completion of the proposed acquisition, the Delden site will continue to supply a range of specialty chemicals to Elementis Specialties Inc under a long-term supply agreement.”

KLK noted that the proposed acquisition, which is expected to be completed in the first half of 2018, will be funded by a combination of the group's existing cash reserves and bank borrowings.

At 12.30pm, KLK shares were unchanged at RM24.38 on some 165,600 shares done.

Market Research, Thursday

US Market : The Nasdaq composite eked out a record close on Wednesday, led by gains in Amazon. Amazon shares rose after CNBC reported the company’s cloud business is about to announce a huge health-care deal with Cerner, one of the largest health technology companies in the world. Europe Market : European stocks ended slightly under pressure on Wednesday, as investors digested the latest U.K. budget announcements and news in the corporate earnings space. Precious Metal Gold : Gold prices shot up on Wednesday as weaker-than-expected U.S. data pushed theRead More

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KUALA LUMPUR (Nov 22): Based on corporate announcements and news flow today, companies in focus on Thursday (Nov 23) may include: Kerjaya Prospek, Telekom, TSH,…

KL Kepong pre-tax profit falls to RM1.45b

KUALA LUMPUR, Nov 22 — Kuala Lumpur Kepong Bhd’s (KL Kepong) pre-tax profit for the financial year ended Sept 30, 2017 fell 15.3 per cent to RM1.45 billion from RM1.71 billion in the same period last year. In a filing to Bursa Malaysia…