Asiatic Development - BUY - 29 May 2008

Asiatic Development - 1QFY08 results seasonally above expectations (Results Note)



Price: RM8.45

Target Price: RM10.10

Recommendation: BUY



· 1QFY08 net profit of RM114.2m was seasonally above expectations at 23% of our earnings estimates of RM497.4m and 25% of consensus estimate of RM464.6m. Revenue, EBIT and pretax profit were all seasonally above expectations comprising between 21% and 22% of our full year estimates.

· 1Q net profit of plantation companies typically comprise between 10% and 20% of full year estimates due to seasonally lower FFB/CPO production. Asiatic Development recorded 1QFY08 average CPO selling price of RM3,403/MT, above our FY08 average CPO selling price assumption of RM3,100/MT.

· Reaped the full benefits of higher CPO selling prices. 1QFY08 net profit of RM114.2m was 146% higher YoY primarily due to higher average CPO selling price of RM3,403/MT compared to RM1,925/MT in 1QFY07.

· QoQ, 1QFY08 net profit of RM114.2m was 6% lower despite higher average CPO selling price as FFB production seasonally declined by 26% QoQ to 259,950MT. We are conservatively maintaining our earnings estimates for Asiatic Development as average CPO selling prices for subsequent quarters are expected to be lower.

· Some 1,800ha from its 70% JV with the Sepanjang Group of Indonesia is expected to mature by FY10 but as young palms typically record low FFB yields, we estimate that these palms will not contribute much more than RM1.0m to net profit. Therefore, we are not imputing earnings contributions from that JV into our earnings estimates.

· Maintain BUY call and RM10.00 target price based on an undemanding 15x FY08E PER. As current CPO selling prices are above RM3,600/MT or 16% above our FY08 average CPO selling price assumption of RM3,100/MT, downside risk to our earnings estimates is very remote.

· We may re-rate target price and earnings higher, should CPO selling prices maintain above our FY08 average CPO selling price assumption of RM3,100/MT. If we rebase our average CPO selling price assumption to the current CPO selling price of RM3,600/MT, the FY08E PER will fall from an already attractive 13x to only 11x.







KENANGA INVESTMENT BANK BERHAD (15678-H)