GENT PLANTATIONS BUY. From an implied MV/ha perspective. Company report. (Maintained) Rationale for report: Company Update PLANTATION

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PLANTATION GENT PLANTATIONS (GENP MK) 15 March 2013 Company report Gan Huey Ling, CFA gan-huey-ling@ambankgroup.

1 PLANTATION GENT PLANTATIONS (GENP MK) 15 March 2013 Company report Gan Huey Ling, CFA From an implied MV/ha perspective Rationale for report: Company Update BUY (Maintained) Price Fair Value 52-week High/Low Key Changes Fair value EPS RM8.93 RM9.55 RM10.169/RM8.095 Unchanged YE to Dec FY12 FY13F FY14F FY15F Revenue (RMmil) 1, , , ,776.6 Net Profit (RMmil) EPS (sen) EPS growth (%) (26.0) Consensus net (RMmil) DPS (sen) PE (x) EV/EBITDA (x) Div yield (%) ROE (%) Net gearing (%) na na Stock and Financial Data Shares Outstanding (million) Market Cap (RM mil) 6,776.1 Book value (RM/share) 4.51 P/BV (x) 2.0 ROE (%) 9.8 Net Gearing (%) na Major Shareholders Genting Bhd (55%) EPF (15%) Free Float (%) 45 Avg Daily Value (RMmil) 2.8 Price performance 3mth 6mth 12mth Absolute (%) Relative (%) Investment Highlights Affirm BUY on Genting Plantations (GenP) with an unchanged fair value of RM9.55/share. Our fair value implies an FY13F PE of 16.6x. We have reduced GenP s FY13F EPS by 3.5% for housekeeping reasons. GenP s average PE was at 17.1x in the past five years. The group s PE band ranged from a low of 5.2x to a high of 27.5x. In this report, we take a look at the implied market value per ha of GenP s plantation landbank. After stripping out net cash and the value of the property division based on PE and earnings from the group s market capitalisation, we estimate the implied market value at RM27,581/ha. We believe that this is undemanding compared with IOI Corporation s estimated RM88,468/ha and Kuala Lumpur Kepong s RM60,247/ha. However, we acknowledge that IOI and KLK could be commanding a premium for their landbank due to the property development potential of some of their plantation land in Malaysia and their higher proportion of mature areas. The implied market value of GenP s plantation landbank is also attractive as it has not reflected the growing proportion of planted and mature areas in Indonesia. Additionally in Malaysia, more than 95% or 57,000ha of GenP s land are mature areas, with a large portion of oil palm trees in the age bracket of eight to 20 years old. The average age of the oil palm trees is roughly 15 years in Malaysia. GenP has approximately 162,741ha of plantation landbank in Indonesia. Out of these, about 36% are planted with oil palm. Out of the planted area of 59,000ha, roughly 14% can be harvested. The group is in the midst of completing the acquisition of another 16,323ha of land in Indonesia. About 16% of GenP s oil palm trees in Indonesia are between four and seven years old, while the balance 84% are aged one to three years. Based on transactions, which took place in FY12, market value of partly-planted landbank in Riau and Kalimantan range between RM6,000/ha and RM20,000/ha. We believe that the wide range in the market values reflects the proportion of the planted areas. In Sabah, we estimate the market value of prime plantation land at RM50,000/ha to RM60,000/ha. PP12247/06/2013(032380)

2 TABLE 1: PLANTATION LAND TRANSACTIONS IN INDONESIA Buyer Date Location of land Purchase price Hectares Price/ha Details of land (RMmil) (ha) (RM) Golden Agri 21-Dec-12 Indonesia ,000 33,931 No details First Resources 22-Oct-12 Riau, Indonesia ,800 19,825 Apparently, half planted. No details in SGX announcement First Resources 19-Oct-12 West Kalimantan ,200 11,030 Planted 8700ha, unplanted 11500ha palm oil mill 45tph Bumitama Agri 19-Oct-12 West Kalimantan ,000 7,801 Planted 2,221ha, average age 1 year old Bumitama Agri 18-Oct-12 Central Kalimantan ,000 6,232 Planted 3301ha, average age=3 years 5766ha under forestry area, 5234ha under other designated areas (including planted areas of 3301ha) PT Borneo Pacific 18-Oct-12 Riau, Indonesia 3, ,878 47,426 Planted = 73514ha. (sold by Lembaga Tabung Haji) 63% between 10 to 19 years, 28% four to nine years old, 8% three years old and below 6 palm oil mills, kernel crushing plant and biomass power plant Source: SGX Announcements, AmResearch MAINTAIN BUY WITH AN UNCHANGED FAIR VALUE OF RM9.55/SHARE Maintain BUY on Genting Plantations (GenP) with an unchanged fair value of RM9.55/share. Our fair value for the group implies an FY13F PE of 16.6x. We have reduced GenP s FY13F EPS by 3.5% for housekeeping reasons. We continue to like GenP for the surge in its FFB production coming from Indonesia and relatively efficient production costs of about RM1,300/tonne. The group s plantation division in Indonesia could breakeven in FY13F, underpinned by economies of scale and commencement of operations of palm oil mills in Central and West Kalimantan. GenP is cheap based on the implied market value of its landbank. After stripping out the value of the property earnings and net cash from the group s market capitalisation, the implied market value of GenP s plantation landbank is about RM27,581/ha. From a PE perspective, GenP is trading at 15.6x FY13F EPS compared with the simple average multiples of 16.5x to 17.6x of the large and medium-cap planters. GenP s balance sheet is healthy. The group is still in a net cash position, in spite of the decline in reserves from RM589.8mil as at end-fy11 to RM248.0mil as at end- FY12. IMPLIED VALUE OF GENP S PLANTATION LANDBANK IS ATTRACTIVE Implied market value estimated at RM27,581/ha GenP s implied market value of about RM27,581/ha was arrived at after stripping out net cash of RM248mil and the value of the property division of RM287mil from GenP s market capitalisation of RM6.8bil (see Table 2). We have assumed a PE of 8x on the property division s FY13F net earnings. In the longer term, we reckon that the earnings value of the property division would rise closer to the market value of the land as the group enjoys the spill-over benefits of the Iskandar development in Johor. We estimate the market value of GenP s property landbank in Kedah, Malacca and Johor at RM1.1bil. AmResearch Sdn Bhd 2

3 TABLE 2: CALCULATION OF GENP S IMPLIED MV/HA Gent Plant Shares out (million) Share price (RM) 9.00 Market cap (RMmil) 6,829.6 less: Valuation of:- Property division (RMmil) Net cash (RMmil) (PE of 8x based on FY13F net earnings) (as at end-fy12) Market value of plantation division (RMmil) 6,294.4 Total landbank (ha) 228,212 Implied value of plant landbank 27,581 (RM/ha) Source: AmResearch TABLE 3 : KLK S AND IOI S IMPLIED MV/HA Implied Market Value of Landbank (RM/ha) IOI 88,468 KLK 60,247 Genting Plantations 27,581 Source: AmResearch How does GenP s implied market value per ha stack up? We believe that the implied market value of GenP s landbank of RM27,581/ha is undemanding as it has not reflected a significant portion of GenP s landbank in Indonesia, which had already been planted. Also some of the planted areas are ready to be harvested. Furthermore, GenP has a substantial portion of oil palm estates in Sabah, which are between four and 20 years old. We estimate the current market value of an oil palm estate in Sabah at RM55,000/ha to RM60,000/ha. In Indonesia, previous market transactions had valued landbank that are partly planted at between RM6,000/ha and RM20,000/ha (see Table 1). In December 2012, Golden Agri acquired 16,000ha of land for RM33,931/ha (see Table 1). Due to the high cost of acquisition, we believe that the land was largely planted. There were no details on the acquired land in the SGX Announcement. How does GenP s implied market value per ha compare with its peers? The implied market value of GenP s plantation land of RM27,581/ha is attractive versus a few of its peers. We estimate the implied market value of IOI Corporation s plantation landbank at RM88,468/ha. As for Kuala Lumpur Kepong (KLK), the implied market value of its plantation landbank is about RM60,247/ha (see Table 3). We believe that IOI commands a premium for their landbank due to the higher average age of their oil palm trees, larger portion of planted areas and the property development potential of some of the plantation land in Malaysia. About 71% of IOI s oil palm trees are in the prime age of eight to 15 years old. We reckon that the average age of IOI s oil palm trees is 14 to 15 years old. As for KLK, the average age of all of its oil palm trees is 10.4 years old. The group s oil palm trees in Indonesia are young as reflected in the average age of eight years old while the older trees are in Sabah with an average of 14.5 years old. Growing plantation landbank in Indonesia GenP has been growing its plantation landbank in Indonesia in the past few years. The group s plantation landbank in Malaysia and Indonesia amounts to about 228,212ha in total. This is roughly 23.1% smaller than KLK s landbank of roughly 296,632ha and bigger than IOI s estimated 218,432ha. AmResearch Sdn Bhd 3

4 GenP is in the midst of completing the acquisition of another 16,323ha of land in Kalimantan. This would bring the group s plantation landbank to 244,535ha. Approximately 71% of GenP s plantation landbank is located in Indonesia, while the balance 29% is located in Malaysia. The size of GenP s planted areas in Indonesia is almost as large as those in Malaysia. We estimate GenP s planted area in Indonesia at 58,733ha currently. In spite of this, about 64% of GenP s landbank in Indonesia is still unplanted. Assuming that half of the land is plantable, this means that the group would be able to develop another 52,004ha of land. New plantings are estimated at 6,000ha for FY13F. In Malaysia, almost 91% of the land is already planted with oil palm. Out of GenP s planted landbank of about 118,357ha in Malaysia and Indonesia, roughly 56% of the oil palm trees are mature, i.e. four years old and above. Mature areas in Malaysia are about 57,239ha while in Indonesia, harvested areas amounted to 8,000ha as at end-fy12. In FY13F, GenP would have mature areas of 12,400ha in Indonesia. In terms of age profile, the average age of GenP s oil palm trees is 15 years old in Malaysia and 3 years old in Indonesia. About 84% of the group s oil palm trees in Indonesia are between one and three years old and the balance 16% are from four to seven years old. AmResearch Sdn Bhd 4

5 TABLE 4: REGIONAL VALUATION COMPARISONS PE (x) ROE (%) Dividend Yield (%) FY13F FY14F FY13F FY14F FY13F FY14F Indonesia PT Astra Agro PT Bakrie Sumatra PT London Sumatra BW Plantation Gozco Plantation PT SMART PT Salim Ivomas Pratama JA Wattie Provident Agro Multi Agro Gemilang Sampoerna Agro Simple average Singapore Wilmar International Olam International Noble Group Golden Agri Resources Indofood Agri Resources Kencana Agri First Resources Bumitama Agri Mewah International GMG Global Global Palm Resources Simple average Malaysia Genting Plantations IJM Plantations United Plantations IOI Corporation Kuala Lumpur Kepong Felda Global Ventures Kulim Sarawak Oil Palms TH Plantations TSH Resources Sime Darby Tradewinds Plantation Sarawak Plantations Hap Seng Plantations Simple average Source: Bloomberg AmResearch Sdn Bhd 5

6 TABLE 5 : FINANCIAL DATA Income Statement (RMmil, YE 31 Dec) F 2014F 2015F Revenue 1, , , , ,776.6 EBITDA Depreciation (44.3) (56.4) (67.0) (75.3) (83.7) Operating income (EBIT) Other income & associates 6.9 (4.8) (1.2) (0.4) 0.6 Net interest Exceptional items Pretax profit Taxation (158.7) (82.0) (121.5) (139.1) (147.5) Minorities/pref dividends (0.6) Net profit Core net profit Balance Sheet (RMmil, YE 31 Dec) F 2014F 2015F Fixed assets , , , ,885.1 Intangible assets Other long-term assets 1, , , , ,452.0 Total non-current assets 2, , , , ,542.8 Cash & equivalent 1, Stock Debtors Other current assets Total current assets 1, , Creditors Short-term borrowings Other current liabilities Total current liabilities Long-term borrowings Other long-term liabilities Total long-term liabilities Shareholders' funds 3, , , , ,479.8 Minority interests BV/share (RM) Cash Flow (RMmil, YE 31 Dec) F 2014F 2015F Pretax profit Depreciation Net change in working capital (78.4) (143.0) (135.4) (148.3) (152.2) Others (31.8) (125.2) (51.5) (52.7) (54.0) Cash flow from operations Capital expenditure (243.9) (316.4) (620.0) (420.0) (420.0) Net investments & sale of fixed assets Others (109.2) (57.4) Cash flow from investing (352.3) (362.9) (596.1) (384.9) (391.6) Debt raised/(repaid) (272.7) Equity raised/(repaid) (0.2) (0.2) Dividends paid (77.6) (95.9) (98.9) (132.0) (138.6) Others (7.1) (13.5) Cash flow from financing (371.5) (131.9) (138.5) Net cash flow (64.5) (535.1) (10.2) 17.7 Net cash/(debt) b/f , Forex 0.1 (1.2) Net cash/(debt) c/f 1, Key Ratios (YE 31 Dec) F 2014F 2015F Revenue growth (%) EBITDA growth (%) Pretax margins (%) Net profit margins (%) Interest cover (x) na na na na na Effective tax rate (%) Net dividend payout (%) Debtors turnover (days) Stock turnover (days) Creditors turnover (days) Source: Company, AmResearch estimates AmResearch Sdn Bhd 6

CHART 1: PE BAND Source: Bloomberg Published by AmResearch Sdn Bhd (335015-P) (A member of the AmInvestment Bank Group) 15th Floor Bangunan AmBank Group 55 Jalan Raja Chulan 50200 Kuala Lumpur Tel:

7 CHART 1: PE BAND Source: Bloomberg Published by AmResearch Sdn Bhd ( P) (A member of the AmInvestment Bank Group) 15th Floor Bangunan AmBank Group 55 Jalan Raja Chulan Kuala Lumpur Tel: (03) (research) Fax: (03) Printed by AmResearch Sdn Bhd ( P) (A member of the AmInvestment Bank Group) 15th Floor Bangunan AmBank Group 55 Jalan Raja Chulan Kuala Lumpur Tel: (03) (research) Fax: (03) The information and opinions in this report were prepared by AmResearch Sdn Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmResearch Sdn Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmInvestment Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice. For AmResearch Sdn Bhd Benny Chew Managing Director AmResearch Sdn Bhd 7

FORMIS RESOURCES HOLD. Reverse takeover of smaller rival - positive for long run. Company report. (Maintained) Rationale for report: Company update

FORMIS RESOURCES HOLD. Reverse takeover of smaller rival - positive for long run. Company report. (Maintained) Rationale for report: Company update FORMIS RESOURCES (FMSR.KL, FMRB.MK) 10 May 2012 Company report AmResearch Sdn Bhd www.amesecurities.com.my +603 2036 2300 Reverse takeover of smaller rival - positive for long run Rationale for report: