Plantation - Malaysian Planters Ripe For Re-Rating

Author: kiasutrader   |   Publish date: Thu, 24 Apr 15:50 

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We  believe  that  with  the  continuous  rise  in  the  stock  prices  of Indonesian planters, Malaysian plantation stocks are ripe  for re-rating,especially  those  trading  at  a  discount  to  their  Indonesian  peers.  We argue  that  Malaysian  planters  should  always  trade  at  some  premium given  their  more  secure  asset  titles  and  significantly  more  developed infrastructure.  Names  that  stand  out  are  IOI  Corp,  Sime,  SOP,  JTiasa and Ta Ann.

• Jakarta rising.  We believe the rise  in  Jakarta-listed big cap plantation stocks  will  eventually  spill  over  to  those  listed  in  Singapore  as  well  as Malaysia.  Most  glaringly,  the  two  big  names  on  the  Jakarta  Stock Exchange  –  AALI (AALI IJ,  BUY, FV:  IDR29,291) and London Sumatra (LSIP  IJ,  NEUTRAL,  FV:  IDR2,182)  –  are  now  trading  at  higher valuations  than IOI Corp (IOI MK,  BUY, FV:  MYR5.11) and Sime Darby (SIME  MK,  BUY,  FV:  MYR10.15).  We  believe  that  Malaysia-listed companies  should trade at some premium to their Indonesian peers due to  the  former’s  more  secure  land  titles  and  the  better  infrastructure  of their Malaysian assets.  This is especially true for players with little or no Indonesian assets.
• The  El  Nino  factor. We mentioned  in  our  recent  2014  strategy  report that Malaysian players will benefit from higher prices  and production this year.  This  would  be  at  the  expense  of  Indonesia  due  to  the  dryness which  hit  that  country  in  2012  and  2013.  The  impending  El  Nino  will benefit  Malaysian  planters  more,  especially  those  with  sizeable  Sabah exposure such as IOI Corp,  for  which  about two-thirds  of production  is from the state. This is due to  Sabah’s  geographical location and  higher rainfall.
• Mid-cap  values.  In  terms  of  valuation,  the  cheapest  exposure  to Malaysian plantations can be found among the mid-cap stocks such as Jaya Tiasa, Sarawak Oil Palms  (SOP)  and Ta Ann. SOP is trading  on par with SGX-listed Bumitama (BAL SP, BUY, FV:  SGD1.39) in terms of enterprise value per planted hectare. Jaya Tiasa, meanwhile,  is trading on  par with Bumitama based on CY14 earnings,  but cheaper based on CY15 earnings due to its stronger growth.