Tradewinds Plantation (BUY; TP: RM5.26)
Still a cheaper exposure to the sector
- Management is confident about the sustainability of the current high CPO prices, with CPO prices averaging at RM3,200/tonne in 2012, backed by relatively stable demand outlook and current supply constraint.
- Production cost will inch up by mid-single digit in 2012, mainly on the back of higher fertilizer cost as well as the full impact of basic wages which was raised since 2H 2011. These two drags will more than offset higher planted hectarage coming into maturity.
- Expects FFB output to grow by 7% p.a. for the next two years, as there would be an additional 8,000 ha of planted area coming into maturity during the period.
- Management indicated that it would plant the remaining landbank (at a pace of ~8,000 ha p.a. for 2012 and 2013) and is actively looking to acquire more landbank, either locally or abroad in order to expand its plantation assets further.
- Management has already identified two immediate strategies to turnaround Mardec, i.e. to bring up utilization rate gradually and to strengthen its procurement strategy, as absolute profitability of this business is driven mainly by volume.
- FY12-14 net profit forecasts raised by 3.9-6.4% largely to reflect higher FFB growth projection.
- TP raised by 4.4% from RM5.04 to RM5.26 based on unchanged 11x revised FY12 FD EPS of 47.8 sen, to reflect our higher net profit forecasts
Source: HLIB Research 27 March 2012
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