Results of SOP, TWSP and TDM

Sorry for my absence. I was traveling around lately. Generally the quarterly results of plantation counters were more or less within my expectations. 4Q might not be as good as 3Q owing to lesser production caused by the rainy season and floods coupled with slightly lower CPO average price. Nonetheless, one of the more disappointing ones is SOP. 

SOP only managed to obtain net profit of only RM43mil in 4Q compared to RM75mil in 3Q. The reason for the huge drop was owing to a delay in delivery of CPO committed to a buyer, according to Maybank. However, the delivery will be recognized in 1Q2012 instead. SOP share price had risen substantially over the past few months, PER at around 11.2x currently. Further upside? Maybe, but seems quite fairly valued IMO, less upside. It's better to switch to other cheaper plantation counters instead. 

TWSP net profit was boosted by its one-off bargain purchase gain of RM18.4mil from acquisition of Mardec. Excluding that, net profit should be around RM80mil, lower than its 3Q net profit of RM99mil owing to lower palm oil prices and higher fertilizer costs. Assuming profit of RM317mil (excluding one-off gain) for FY2011, PER should be around 8.8x based on diluted EPS of 50 sen. Still attractive fundamentally, but shares are weak and illiquid for now, lacking in buyers. Can consider accumulating on weakness.

TDM quarterly results were better than TWSP and SOP. Net profit achieved was RM44mil for 4Q2011. Total net profit at RM157mil for FY2011 or EPS of 66.3 sen. PER 2011 is only at 7.2x coupled with net cash of more than RM220mil. Thus, there's still plenty of upside to come. By valuing TDM at PER of 10x, its stock price should exceed RM6.00 per share. 

Other stocks worth looking at: Mudajaya, Coastal, Kim Loong, BLD Plantation and Kfima owing to their attractive valuations. 

Stock take: TWSP, TDM, SOP

TWSP (RM4.70):

• % Rise (From RM3.72): 26.34%
• PER 2011: 7.5x
• PBV: 1.3x
• Comments: Some big players buying into this stock, often times in bulks. Just look at the heavy volume queuing up to buy. Buy queue ending today with 1,700++ lots at RM4.70!! The next superstar in the making IMHO. Just compare companies with earnings of RM350-RM450mil. Their market cap is way way up the sky at RM5bil-7bil. TWSP is still at RM2.49bil. Thus, I'm not surprised if its stock price shoots past RM6.00.

SOP (RM5.59): 

• % Rise (From RM4.48): 24.8%
• PER 2011: 9.0x
• PBV: 1.86x
• Comments: Concentrated big players buying into this stock. More erratic in volume. Not so cheap as compared to TWSP and TDM. Might shoot past RM6.00, who knows. RM6.00 is not expensive either if compared with the likes of IJMP and TSH. 

TDM (RM3.69):

• % Rise (From RM2.98): 23.8%
• PER 2011: 5.5x
• PBV: 1.1x
• Comments: Demand for its stocks too broad-based for now. Follow market sentiment too much, thus lull performance as compared to SOP or TWSP. Can only see small players nibble at it for now. Stopped at RM3.70-3.80 for some time. Still super duper cheap at this juncture. EPS could be close to 70 sen. Attaching PER of 10x will make it a RM7.00 stock. When will it arise from its current slumber? Hmmm....

Sarawak Oil Palms Bhd (RM4.66; TP: RM5.80): Results in-line

SOP achieved a net profit of RM75.14mil in 3Q2011, an increase of 52.1% yoy and 7.4% qoq. 9M2011 net profit rose to RM199.6mil, an increase of 94.2% yoy. However, profit before tax in 3Q2011 dropped qoq to RM103.8mil from RM112mil in 2Q2011 as palm oil production growth could not offset the drop in palm oil prices. Net cash stood at RM104mil. Going forward, 4Q2011 might retain the same performance or a marginal drop in profits owing to slightly lower production (judging from its historical production in 4Q vs 3Q), assuming palm oil prices remain at RM3,000/MT.

Net profit is on track to reach about RM270-280mil in the whole year of 2011, equivalent to EPS of 62.2 sen to 64.5 sen. It is currently trading at PER 2011 of 7.2-7.5x which remains undemanding. PBV is at 1.48x. Fair value maintained at RM5.80 per share, an upside of 24.5%. Over the past 2 weeks, its share price remained very resilient supported by very strong buying power, despite the drop in the overall market over the few weeks. It’s a stock worth putting in your portfolio over the long term. Strong earnings growth would come from its young tree age profile as 43% of its immature trees mature over the next few years.

Market Data:

Share price: RM4.66

Shares issued: 434.146mil

Market Cap: RM2,023mil

PER 2011: 7.2-7.5x

PBV: 1.48x

Sarawak Oil Palms Bhd (RM4.48; TP: >RM5.80): High production growth, PER of ~7x, cash-rich

Another plantation counter worth looking at: Sarawak Oil Palms Bhd. Someone must have been buying up this stock lately looking at its rally over the past few days. Some details on SOP:

• 10-months year-to-date CPO production growth (y-o-y): 31.6%
• 1H2011 net profit: RM125.5mil 
• Expected 2011 net profit: RM280mil
• 1H2011 earnings growth y-o-y: 135%
• Net cash position: RM116mil
• Immature plantation: 25,063ha
• Mature plantation: 33,877ha
• Reserves: ~15,000ha
• Plantation expansion: Historically about 5K-10K ha p.a.
• Growth prospects: Favorable tree age profile as about 43% of palm trees are immature. This will underpin strong growth in palm oil production over the next few years. SOP also invested downstream into palm oil refinery coupled with property development, but muted impact on earnings until about mid FY2012.
• PER 2011: 6.95x assuming RM280mil net profit
• PBV: 1.5x
• Fair value: RM5.80 assuming PER of 9x, an upside of 29.5%; RM6.45 assuming PER of 10x, an upside of 46%.

SOP is currently exhibiting strong earnings growth coupled with strong production growth owing to its favorable tree age profile. This puts SOP above many other plantation counters as it is already reaping the fruits from its rapid expansion over the past few years, rather than having to wait a few more years for the fruits to ripe. Another counter having huge production growth in palm oil production is Jaya Tiasa, but the counter is not as attractive in my opinion as it is very illiquid with a higher PER and weaker balance sheet in addition to its major business in the timber industry (not that it's not good now, it's just not as solid as oil palm plantation).

SOP's current valuation remains attractive at PER of 6.95x, underpinned by strong balance sheet and solid growth. Having said that, TDM is still more undervalued as compared to SOP, but SOP receives wider coverage from research houses such as Maybank and OSK and it's recently included in the Mid-70 index as well, which might give some impetus to its share price and attract more investors. It's a stock worth putting into your basket of shares over the longer term. Exercise some caution though when buying as there might be some profit taking owing to the huge run-up in its share price.



Market Data:
Share price: RM4.48
Shares Issued: 434.15 mil
Market Cap: RM1,945 mil