SECTOR FOCUS OF THE DAY
Plantation Sector : De-rating of smaller plantation
companies
NEUTRAL
Over the past couple of weeks, PE valuations of the small to
mid-cap plantation have de-rated while those of the large-caps have remained
stable. Share prices of Genting Plantations (GenP), TSH Resources and IJM
Plantations (IJMP) have fallen by 7% to 16% from their highs this year. On the
other hand, share prices of Sime Darby, Kuala Lumpur Kepong (KLK) and IOI
Corporation have been relatively unchanged. Based on yesterday's prices, the
smaller companies are currently 29% cheaper than the large caps. TSH and IJMP
are trading at FY18F PE multiples of 16.9x to 17.8x. The exception is GenP,
which is still trading on par with the larger caps. GenP's FY18F PE of 23.5x is
close to KLK's 24.1x and IOI's 23.5x.
We attribute the fall in the share prices of the smaller
plantation companies to the 21% decline in CPO prices from this year's high of
RM3,278/tonne. Purer plantation companies are more vulnerable to a slide in CPO
prices. We estimate that a RM100/tonne change in average CPO price would
improve or decrease the net profit of the purer plantation companies like IJMP
and GenP by 4% to 7%. On the other hand, net profit of the larger plantation
companies would only be affected by 2% to 3%. We are reviewing our
recommendations or fair values for GenP and TSH Resources as their share prices
have fallen below our target prices. We maintain NEUTRAL on the plantation
sector. Although we do not have any BUY call, we would recommend KLK for
investors who would like exposure to the plantation sector.
Others :
Sasbadi Holdings : Legal claim by
Pelangi
BUY
Automobile : Plodding on to the next
half
NEUTRAL
STOCKS ON RADAR
Tex Cycle Tech.,Sunway Construction,Sunzen Biotech, Jaks
Resources
ECONOMIC HIGHLIGHT
US : Expect balance sheet reduction to take centre stage at
July FOMC meeting
NEWS HIGHLIGHTS
Lotte Chemical Titan Holding : Lotte Chemical spends
RM226mil in share buyback
Dagang NeXchange : DNeX in merger talks to boost profit
Scomi Group : Auditors raise doubts on Scomi’s business
ability due to ongoing disputes
Axis-REIT : Axis-REIT to acquire land, buildings for RM155m
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