Kulim (Malaysia) Berhad BUY
Price target RM13.00
Share price at 16 May RM8.30
Investment summary
Kulim announced that its 51%-subsidiary NBPOL has offered to privatize Ramu Agri-Industries for USD44m. We think the deal is cheap (normalized 9x PE, vacant land value of USD1,800/ha) and transformative. Kulim remains our top pick in the plantation sector: 1) the stock trades at a FY08 PE of 8x vs. 14x for mid-cap peers; (2) Room for corporate action gains, given lumpy low-performing assets (eg. QSR, Johor development land). We are neutral on the plantation sector, and advocate switching from IOI/KLK to small/mid-cap planters such as Kulim, which offer better value/yield. Given the tight global supply of edible oil and grain, we expect CPO price to stay firm in the next 6 months.
PNG acquisition
NBPOL’s acquisition of RAI sets the stage for its emergence as a serious mid-cap planter. We expect further upside to NBPOL’s London-listed share price, and consequently to Kulim’s SOTP value.
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Saturday 7 June 2008
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