HLG: MRCB - 1Q08 results way below expectations (Results Note)

Kuala Lumpur Kepong Bhd HOLD



Price target RM19.80



Share price at 21 May RM17.90



Investment summary


H108 EPS doubled, but was broadly in-line with HLG/market expectations. We maintain our HOLD rating on KLK due to valuations: EV/ha of RM160,000 and implied terminal CPO price of RM2,600 is a 117% premium to mid-cap names such as Kulim.



We think the appeal of big-cap planters will fall in an environment where CPO prices move sideways and cease to reach new highs: (1) big-cap stocks have been treated as liquid, leveraged CPO proxies; (2) this has created a large 40%+ valuation premium to small/ mid-cap planters. From a macro view, given the tight global supply of edible oil and grain, we expect CPO prices to stay firm over the next 6 months.



Expensive

H108 results were in-line with Street expectations, but are probably priced-in. We still prefer mid-cap plantation names with cheaper valuations. For big cap exposure, we prefer Sime, again on valuations.