Plantations NEUTRAL - I3investor...capped by (i) ample oilseeds in the market, especially rapeseed...
Transcript of Plantations NEUTRAL - I3investor...capped by (i) ample oilseeds in the market, especially rapeseed...
February 05, 2014
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SEE PAGE 11 FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS Co. Reg No: 198700034E MICA (P): 099/03/2012
Plantations NEUTRAL (unchanged)
Light exposure to the sector Most funds we met in Singapore have little exposure to the
sector and most are taking a trading approach to the sector.
Interest centered on growth stocks, companies with property
development potential, and Indonesia’s weakened Rupiah.
Maintain NEUTRAL. BUY Wilmar, First Resources, Bumitama,
Astra Agro Lestari, TSH Resources and Ta Ann. SELL IOI Corp,
KL Kepong and TH Plantations on lofty valuations.
What’s New
We met 15 funds over a 2-day marketing trip in Singapore. We
gather that most have little exposure to the plantation sector, and
largely NEUTRAL to UNDERWEIGHT the sector. Most take a trading
oriented approach to the sector unlike the Malaysian funds.
Fund managers were surprised to learn that valuations of
plantation stocks in Malaysia are relatively higher than regional
peers in part due to the growing pool of Shariah funds in Malaysia
which is structural in nature.
Unlike Indonesian planters, selected Malaysian plantation stocks
(like Genting Plantations, Sime Darby, KL Kepong, Sarawak Oil
Palms) have property development potential given pockets of
strategic estates held.
Many agree that Indonesia's plantation stocks are good for a trade
as they are a natural hedge against a weakened Rupiah against the
US dollar. Earnings for these Indonesian plantation stocks (in
Rupiah terms) are expected to be good in the coming quarter.
What’s Our View
We maintain our MYR2,600/t CPO ASP forecasts for 2014 and 2015
(2013: MYR2,377/t). Amidst a relatively flattish CPO ASP outlook
from the current MYR2,516/t, we continue to advocate plantation
companies with good organic growth. In this category, our top BUYs
are First Resources, Bumitama Agri, TSH Resources and Ta Ann, for
their double-digit FFB growth potential over the next 3-5 years.
Elsewhere, Astra Agro Lestari provides a good trade on strong
earnings turnaround, benefiting from a weakened Indonesian
Rupiah. Felda Global remains a TRADING BUY for its earnings
turnaround and M&A potential.
Analysts
Ong Chee Ting, CA
(603) 2297 8678
Regional CPO price forecast
2013A 2014F
MYR/t MYR/t
Full year average (FOB) 2,377 2,600
MDEX:
3M CPO price (10 Jan) - 2,517
YTD (10 Jan) CPO ASP - 2,553
Source: Maybank KE, Bloomberg
Regional Plantation coverage
Company Rec Price TP Upside
Malaysia listed MYR MYR %
Sime Darby Hold 9.30 9.80 5.4
IOI Corp Sell 4.24 3.95 -6.8
KL Kepong Sell 23.90 19.90 -16.7
FGVH Tr Buy 4.50 4.70 4.4
Gent Plant Hold 10.74 10.90 1.5
Swk Oil Palms Hold 6.95 6.30 -9.4
TSH Res Buy 2.88 3.40 18.1
Ta Ann Buy 4.18 4.50 7.7
TH Plant Sell 1.85 1.28 -30.8
Singapore listed
Wilmar Buy 3.35 4.30 28.4
First Resources Buy 2.07 2.39 15.5
Bumitama Buy 0.95 1.14 20.0
Indonesia listed
Regional CPO price forecast
2013A 2014F
MYR/t MYR/t
Full year average (FOB) 2,377 2,600
MDEX:
3M CPO price (10 Jan) - 2,517
YTD (10 Jan) CPO ASP - 2,553
Source: Maybank KE, Bloomberg
Regional Plantation coverage
Company Rec Price TP Upside
Malaysia listed MYR MYR %
Sime Darby Hold 9.30 9.80 5.4
IOI Corp Sell 4.24 3.95 -6.8
KL Kepong Sell 23.90 19.90 -16.7
FGVH Tr Buy 4.50 4.70 4.4
Gent Plant Hold 10.74 10.90 1.5
Swk Oil Palms Hold 6.95 6.30 -9.4
TSH Res Buy 2.88 3.40 18.1
Ta Ann Buy 4.18 4.50 7.7
TH Plant Sell 1.85 1.28 -30.8
Singapore listed
Wilmar Buy 3.35 4.30 28.4
First Resources Buy 2.07 2.39 15.5
Bumitama Buy 0.95 1.14 20.0
Indonesia listed
Regional CPO price forecast
2013A 2014F
MYR/t MYR/t
Full year average (FOB) 2,377 2,600
MDEX:
3M CPO price (10 Jan) - 2,517
YTD (10 Jan) CPO ASP - 2,553
Source: Maybank KE, Bloomberg
Regional Plantation coverage
Company Rec Price TP Upside
Malaysia listed MYR MYR %
Sime Darby Hold 9.30 9.80 5.4
IOI Corp Sell 4.24 3.95 -6.8
KL Kepong Sell 23.90 19.90 -16.7
FGVH Tr Buy 4.50 4.70 4.4
Gent Plant Hold 10.74 10.90 1.5
Swk Oil Palms Hold 6.95 6.30 -9.4
TSH Res Buy 2.88 3.40 18.1
Ta Ann Buy 4.18 4.50 7.7
TH Plant Sell 1.85 1.28 -30.8
Singapore listed
Wilmar Buy 3.35 4.30 28.4
First Resources Buy 2.07 2.39 15.5
Bumitama Buy 0.95 1.14 20.0
Indonesia listed
Regional CPO price forecast
2013A 2014F
MYR/t MYR/t
Full year average (FOB) 2,377 2,600
MDEX:
3M CPO price (10 Jan) - 2,517
YTD (10 Jan) CPO ASP - 2,553
Source: Maybank KE, Bloomberg
Regional Plantation coverage
Company Rec Price TP Upside
Malaysia listed MYR MYR %
Sime Darby Hold 9.30 9.80 5.4
IOI Corp Sell 4.24 3.95 -6.8
KL Kepong Sell 23.90 19.90 -16.7
FGVH Tr Buy 4.50 4.70 4.4
Gent Plant Hold 10.74 10.90 1.5
Swk Oil Palms Hold 6.95 6.30 -9.4
TSH Res Buy 2.88 3.40 18.1
Ta Ann Buy 4.18 4.50 7.7
TH Plant Sell 1.85 1.28 -30.8
Singapore listed
Wilmar Buy 3.35 4.30 28.4
First Resources Buy 2.07 2.39 15.5
Bumitama Buy 0.95 1.14 20.0
Indonesia listed
Regional CPO price forecast
2013A 2014F
MYR/t MYR/t
Full year average (FOB) 2,377 2,600
MDEX:
3M CPO price (4 Feb) - 2,529
YTD (4 Feb) CPO ASP - 2,560
Source: Maybank KE, Bloomberg
Regional Plantation coverage
Company Rec Price TP Upside
M’sia listed MYR MYR %
Sime Darby Hold 8.87 9.80 10.5
IOI Corp Sell 4.15 3.95 -4.8
KL Kepong Sell 23.02 19.90 -13.6
FGVH Tr
Buy 4.27 4.70 10.1
Gent Plant Hold 10.06 10.90 8.3
Swk Oil Palms Hold 6.40 6.30 -1.6
TSH Res Buy 2.77 3.40 22.7
Ta Ann Buy 4.08 4.50 10.3
TH Plant Sell 1.72 1.28 -25.6
Sg listed
Wilmar Buy 3.10 4.30 38.7
FR Buy 1.97 2.39 21.6
Bumitama Buy 0.90 1.14 26.7
Indon listed
Astra Agro Buy 21350 28000 31.1
Ldn Sumatra UR 1630 NR na
Source: Maybank KE; UR = Under Review
February 05, 2014 2
Plantations
Sector Summary Table
Company Rating Mkt Cap Shr px TP EPS Growth (%)
PE (x)
Div Yield (%)
EV/EBITDA (x)
P/B (x)
ROE (%)
4 Feb 4 Feb 14F 15F 14F 15F 14F 15F 14F 15F 14F 14F
(USD m) (LCY) (LCY)
Sime Darby Hold 16,175 8.87 9.80 1.1 5.2 16.4 15.5 3.4 3.6 10.0 9.6 1.8 11.1
IOI Corp Sell 7,926 4.15 3.95 (12.8) (9.0) 19.1 21.0 2.6 2.4 13.3 13.8 4.6 17.7
KL Kepong Sell 7,372 23.02 19.90 16.2 3.1 22.5 21.8 2.7 2.7 13.8 13.1 3.2 13.8
FGVH Tr Buy 4,684 4.27 4.70 76.8 12.3 23.4 20.8 2.1 2.4 12.2 11.5 2.3 9.9
Gent Plant’ns Hold 2,296 10.06 10.90 33.1 19.8 20.7 17.3 1.0 1.2 16.8 14.1 1.9 9.4
SOP Hold 843 6.40 6.30 72.6 19.8 15.2 12.7 0.8 0.9 9.3 7.9 2.0 13.9
TSH Resources Buy 747 2.77 3.40 36.9 13.1 17.5 15.5 1.7 1.9 15.2 13.8 2.3 12.4
Ta Ann Buy 455 4.08 4.50 62.3 34.0 13.6 10.2 3.2 4.4 7.5 5.9 1.5 12.1
TH Plant Sell 455 1.72 1.28 84.1 33.4 18.9 14.2 2.6 3.5 9.9 8.1 1.3 6.9
Malaysia Average 19.0 18.3
Wilmar Buy 15,636 3.10 4.30 6.5 11.4 9.9 8.9 2.0 2.3 10.7 9.7 0.8 9.6
Golden Agri * N.R 5,110 0.505 N.R. 43.5 15.2 12.1 10.5 2.5 3.0 8.8 7.7 0.6 4.7
First Resources Buy 2,453 1.97 2.39 0.5 8.7 12.1 11.2 2.4 2.6 8.3 7.4 1.8 14.5
Bumitama Agri Buy 1,247 0.90 1.14 69.0 16.0 13.6 11.7 1.6 1.8 9.4 8.3 2.4 17.7
Indofood Agri * N.R 843 0.76 N.R. 71.0 25.3 12.0 9.6 0.8 0.8 8.0 6.8 0.7 5.3
Singapore Average 10.8 9.6
Astra Agro Buy 2,755 21,350 28,000 11.6 9.1 14.4 13.2 2.8 3.1 8.2 7.4 3.0 20.5
Salim Ivomas Pratama* N.R 927 715 N.R. 136.2 22.6 14.4 11.8 1.5 1.9 6.6 5.8 0.8 5.3
London Sumatera U.R. 911 1,630 N.R. 30.4 8.4 13.2 12.2 2.3 3.0 8.1 7.3 1.6 11.9
Sampoerna Agro * N.R 280 1,805 N.R. 220.3 11.5 11.9 10.7 1.8 2.6 7.0 5.9 1.2 8.5
BW Plant'n * N.R 460 1,255 N.R. 87.5 40.1 15.7 11.2 1.0 1.5 12.0 9.0 2.4 15.9
Indonesia Average 14.2 12.5
Source: Maybank-KE, *bloomberg estimates, UR = Under Review
CPO price update
We updated investors on our CPO price outlook. We reiterated our view
that CPO prices will remain relatively resilient in 1Q14 due to biological
tree stress and as the industry enters into seasonally lower production
months in Feb-Apr. We expect CPO prices to stay firm around MYR2,600/t
and possibly trading up to MYR2,800/t. Nonetheless, CPO prices upside is
capped by (i) ample oilseeds in the market, especially rapeseed oil and
soybean, and (ii) narrowed palm oil price discount to soyoil.
Prices of 3 major vegetable oils and crude oil Narrowed discount of palm oil to soyoil
500
600
700
800
900
1,000
1,100
1,200
1,300
1,400
1,500
1,600
Jan-1
1F
eb-1
1M
ar-
11
Apr-
11
May-
11
Jun-1
1Ju
l-11
Aug-1
1S
ep-1
1O
ct-11
Nov-
11D
ec-
11Ja
n-1
2F
eb-1
2M
ar-
12
Apr-
12
May-
12
Jun-1
2Ju
l-12
Aug-1
2S
ep-1
2O
ct-12
Nov-
12D
ec-
12Ja
n-1
3F
eb-1
3M
ar-
13
Apr-
13
May-
13
Jun-1
3Ju
l-13
Aug-1
3S
ep-1
3O
ct-13
Nov-
13D
ec-
13Ja
n-1
4
USD/tSweet Crude PalmOil 1mthRapeseed oil Soyoil 1mth
-50%
-40%
-30%
-20%
-10%
0%
10%
1/4/
2006
6/4/
2006
11/4
/200
6
4/4/
2007
9/4/
2007
2/4/
2008
7/4/
2008
12/4
/200
8
5/4/
2009
10/4
/200
9
3/4/
2010
8/4/
2010
1/4/
2011
6/4/
2011
11/4
/201
1
4/4/
2012
9/4/
2012
2/4/
2013
7/4/
2013
12/4
/201
3
Sources: Bloomberg, Maybank-KE Sources: Bloomberg, Maybank-KE
February 05, 2014 3
Plantations
Over the past 15 years, CPO has mostly traded at a discount to soyoil
prices, except during a short period of time in 1998. This period coincided
with the strong El Nino occurrence where palm oil supply was severely
affected by extreme dry weather in this region. In 1998, Malaysia (then the
world’s largest producer of palm oil) suffered an 8.3% YoY contraction in
production to 8.32m MT of CPO. This led to CPO taking price leadership for
a short period of time.
Unlike the 1998 episode, we do not think this 2013 biological tree stress is
of similar intensity as 1998. Hence, we do not think CPO prices will trade
at a premium to soyoil prices. Even if it does, it will not be for an
extended period of time as we anticipate a meaningful production
recovery in 2H14. Nonetheless, the narrowed discount could be sustained
in the short term to reflect tightness in palm oil supply.
Soyoil vs Palm Oil (in MYR terms) Soyoil – Palm Oil monthly price spread since 1995
700
1,200
1,700
2,200
2,700
3,200
3,700
4,200
4,700
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
MYR/t Soyoil price CPO price
-400
-200
0
200
400
600
800
1,000
1,200
1,400
1,600
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
MYR/t
Spread
Sources: Bloomberg, Maybank-KE Sources: Bloomberg, Maybank-KE
We caution that CPO prices will weaken to between MYR2,400/t- 2,600/t
towards May-June 2014 period as (i) South American harvests hit the
market, (ii) US soybean planting starts (likely a record high given
weakened corn prices), and (iii) as the market prices in stronger CPO
output in 2H14. The above assumes no weather anomalies although there
are early signs of a possible El Nino developing towards 2H14 but this is
still early days.
Growing pool of Shariah funds in Malaysia to sustain
valuation
Singapore fund managers were surprised to learn that the valuations of
plantation stocks in Malaysia are relatively higher than regional peers in
part due to the growing pool of Shariah funds in Malaysia. Shariah funds
are prohibited from buying conventional banking and sin stocks (like
gaming and alcohol) which preclude ~40% investable stocks on the KLCI.
The growing pool of Shariah funds has in turn benefited the largely Shariah
compliant plantation, tele-communication, and oil & gas stocks which also
explains their relatively higher valuations vis-a-vis regional peers. Hence,
while Malaysian plantation stocks are relatively more expensive than
regional peers, we believe its valuations will remain rich going forward as
the growing pool of Shariah funds in recent years are structural in nature.
February 05, 2014 4
Plantations
KLPlantation Index vs CPO price (absolute performance) KL Plantation Index vs CPO price (relative performance)
1000
1500
2000
2500
3000
3500
4000
4500
2000
3000
4000
5000
6000
7000
8000
9000
10000
Jan-
05
Jul-0
5
Jan-
06
Jul-0
6
Jan-
07
Jul-0
7
Jan-
08
Jul-0
8
Jan-
09
Jul-0
9
Jan-
10
Jul-1
0
Jan-
11
Jul-1
1
Jan-
12
Jul-1
2
Jan-
13
Jul-1
3
Jan-
14
MY
R p
er
ton
ne
Ind
ex
KL Plantation Index CPO Price
0
50
100
150
200
250
300
350
400
Ja
n-0
5A
pr-
05
Ju
l-0
5O
ct-
05
Ja
n-0
6A
pr-
06
Ju
l-0
6O
ct-
06
Ja
n-0
7A
pr-
07
Ju
l-0
7O
ct-
07
Ja
n-0
8A
pr-
08
Ju
l-0
8O
ct-
08
Ja
n-0
9A
pr-
09
Ju
l-0
9O
ct-
09
Ja
n-1
0A
pr-
10
Ju
l-1
0O
ct-
10
Ja
n-1
1A
pr-
11
Ju
l-1
1O
ct-
11
Ja
n-1
2A
pr-
12
Ju
l-1
2O
ct-
12
Ja
n-1
3A
pr-
13
Ju
l-1
3O
ct-
13
Ja
n-1
4
%
KL Plantation Index CPO Price
Sources: Bloomberg, Maybank-KE Sources: Bloomberg, Maybank-KE
Property development potential lifts valuations for selected
Malaysian plantation stocks
Unlike Indonesian planters, selected Malaysian plantation stocks have a
property angle to them. Some of these plantation land, mainly those
located in Peninsular Malaysia, have been held for more than 20 years and
are prime for property development.
Genting Plantations, KL Kepong, and Sime Darby have strategic landbanks
in the Klang Valley and Iskandar Malaysia (Johor) which are prime for
property development. In Miri (Sarawak), Sarawak Oil Palms is about to
embark on a new journey into property development to unlock the value of
its plantation estates. Miri is a growing oil & gas town in East Malaysia.
Unfortunately, the recent demerger of IOI Corp’s property division into a
separate listed vehicle under IOI Properties Group (IOIPG MK, Not Rated)
means the latter now holds the prime land bank for current and future
property development potential. This has dampened the property appeal
of IOI Corp, which is now a sister company to IOI Properties Group.
Weakened Indonesia Rupiah benefits the plantation stocks
Many agree that Indonesia's plantation stocks are good for a trade as they
are a natural hedge against a weakened Rupiah against the US dollar.
Earnings for Indonesian plantation stocks (in Rupiah terms) are expected to
recover strongly in the upcoming quarterly results. In Indonesia, domestic
CPO prices were up by +50% in 2013 compared to 15% in Malaysia.
February 05, 2014 5
Plantations
A higher palm oil price in Rupiah term recorded since 4Q13
5000
6000
7000
8000
9000
10000
11000
1,500
2,000
2,500
3,000
3,500
4,000
Apr
-12
May
-12
Jun-
12
Jul-1
2
Aug
-12
Sep
-12
Oct
-12
Nov
-12
Dec
-12
Jan-
13
Feb-
13
Mar
-13
Apr
-13
May
-13
Jun-
13
Jul-1
3
Aug
-13
Sep
-13
Oct
-13
Nov
-13
Dec
-13
Jan-
14
Rp/kgMYR/tMalaysia CPO price (MYR/t)
Indonesia CPO price (Rp/kg)
Sources: Bloomberg, Maybank KE
Valuation and Recommendations
Go for growth. Companies with young tree age profiles are expected to
grow the fastest and outperform their peers in the long run. In this space,
Bumitama Agri leads the pack with its young tree age profile of ~5.5 years
old, followed by Ta Ann (~6-yrs), TSH (~7-yrs), Sarawak Oil Palms (SOP,
~8.5-yrs), and TH Plant (THP, ~9-yrs). Bumitama Agri (20.8% 3-year 2012-
15 FFB production CAGR), Ta Ann (19.3%) and TSH (18.8%) are projected to
have the highest growth, followed by SOP (12%), THP (11.5%), FR (10%),
and Genting Plant (GENP, 9.2%).
Average age profile of companies vs FFB yield (t/ha) in
2012
3-year FFB production CAGR for companies under our
coverage
Sime
IOI
KLK FGVH
GenP
THP
TSH
SOP
Ta Ann
Wilmar
GAR FR
IFAR
KAGR
BAL
AALI
LSIP
SIMP
BWPT
0
5
10
15
20
25
30
3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25Average age (yrs)
FFB Yield (t/ha)
20.8%
19.4%
19.3%
12.0%
11.5%
10.0%
9.2%
6.7%
6.2%
6.0%
3.8%
2.4%
1.2%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0%
Bumitama Agri
TSH Resources
Ta Ann Holdings
Sarawak Oil Palms
TH Plantations
First Resources
Genting Plantations
London Sumatra
Astra Agro Lestari
Kuala Lumpur Kepong
IOI Corporation
Felda Global
Sime Darby
FFB growth (3-year CAGR)
Sources: Bloomberg, Maybank-KE Sources: Bloomberg, Maybank-KE
February 05, 2014 6
Plantations
Top BUYs in the region: First Resources, Bumitama Agri, TSH Resources,
Ta Ann and Felda Global (Trading Buy). We prefer small- to mid-cap
plantation plays for 1Q14 on significant earnings turnaround leveraging on
higher CPO ASPs YoY and their relatively cheaper valuations vis-à-vis large
caps. Companies with good long-term growth proposition given their
younger age tree profiles like First Resources, Bumitama Agri, TSH
Reosurces and Ta Ann are our top picks. For large caps, Felda Global is a
Trading Buy, for we expect it to post a significant turnaround in core
earnings given its relatively higher cost base and for M&A potential.
Top SELLs in the region: IOI Corp, KL Kepong and TH Plant. Our SELL calls
are mainly premised on the lofty valuations of the stocks which trade at
above 20x 2014 PER, and lack of short-term catalysts to boost stock price
performance.
Key stock briefs
Risks to our view
Upside risks: (i) weather anomalies (or recurrence of a strong El Nino) at
major producing countries remain the biggest threat on supply, (ii) strict
and successful implementation of Indonesia’s ambitious biodiesel mandate.
Downside risks: (i) lower crude oil prices will soften biofuel appeal and
lead to lower vegetable oil (including CPO) prices; (ii) an unexpected steep
slowdown in global growth (especially China and India) impacting demand
for palm oil, (iii) changes in government policies, and (iv) non-
governmental organisational (NGO) activism which pose serious threats to
demand.
February 05, 2014 7
Plantations
Big Cap
Sime Darby (SIME MK)
HOLD
Current price: MYR8.97
Target price: MYR9.80
Sime Darby is a diversified conglomerate, with six core businesses (ranked by EBIT contributions in FY6/13) – plantations (43%), heavy equipment (28%), motors (15%), property (11%), energy & utilities (5%) and healthcare (<1%). It operates in over 20 countries with a strong presence in the Asia-Pacific region.
Largest property landowner in Malaysia with ~16,000 acres for development in Peninsular Malaysia. Medium term catalysts – potential spin off of some key divisions to unlock value.
Planning landbank expansion in Africa (220,000 ha) to ensure sustainability of plantation earnings growth, one of its key earnings driver.
Industrials and Motors would fortify earnings growth, capitalizing on Asia’s rising affluence.
Valuation: Our MYR9.80 TP is based on 18x 2014 PER (based on CPO ASP assumption of MYR2,600/t for 2014-15).
IOI Corporation (IOI MK)
SELL
Current price: MYR4.15
Target price: MYR3.95
Post the de-merger of its property development division, IOI Corp will be a pure integrated plantation player with ~173k ha of planted oil palm estates.
Given IOI Corp’s relatively mature age profile of ~12years, we expect tepid 3.8% 2013-16 CAGR in FFB output.
The remaining plantation land bank post the demerger does not have any property development potential in the near term to back its steep valuation.
Valuation is steep at ~21x FY15 PER (2SD above its 3-year historical mean PER of 20x) and MYR130k EV per planted hectare (vs the sector’s MYR66k). SELL with a TP of MYR3.95 on 20x 2015 PER (based on CPO ASP assumption of MYR2,600/t for 2014-15).
KL Kepong (KLK MK)
SELL
Current price: MYR23.02
Target price: MYR19.90
A diversified group with upstream and downstream oil palm plantation operations. Its extensive oleochemical operations are diversified across Malaysia, Europe and China. It has a small property development division.
With an average tree age profile of ~10-years, we anticipate 6.0% FY13-16 CAGR in FFB output.
KLK targets new planting of 5k – 8k ha each year in Indonesia backed by its remaining plantable reserves of 12,000 ha. This excludes recently acquired 44k ha of land in Papua New Guinea, suitable for future oil palm planting.
Valuation is stretched, trading at ~22x FY15 PER. Maintain SELL with MYR19.90 TP on 19x FY15 PER (based on CPO ASP assumption of MYR2,600/t for 2014-15).
Felda Global (FGV MK)
Trading BUY
Current price: MYR4.27
Target price: MYR4.70
FGV is an integrated global agricultural player focused on three primary commodities – palm oil, rubber and sugar. It is the world’s 3rd largest listed oil palm plantation operator by planted area. It has recently completed the acquisition of remaining 51% stake in FHB (previously an associate company) that undertakes the group’s midstream and downstream related businesses.
It is Malaysia’s leading refined sugar producer via 51%-subsidiary MSM Malaysia with ~57% market share by production volume in 2011.
Over 75% of FGVH’s FY12 pretax profit is derived from its palm oil division, followed by its sugar division at ~20%.
Armed with ~MYR2b cash pile, FGVH continues to be on the lookout for M&A opportunities – its key catalysts. It can gear up for future acquisitions if necessary.
Valuation: Our MYR4.70 TP is based on SOP (based on CPO ASP assumption of MYR2,600/t for 2014-15).
February 05, 2014 8
Plantations
Big Cap (continued)
Genting Plantations (GENP MK)
HOLD
Current price: MYR10.06
Target price: MYR10.90
Pure upstream plantation player and 5th largest listed Malaysian plantation company in terms of planted oil palm estates of 113,000 ha and another ~93,000 ha unplanted land rights in Indonesia. With average age of ~9years (44% immature), we expect 9.2% 3-year 2012-15 FFB CAGR.
GENP owns ~43,000 acres of freehold plantation estates in Peninsular Malaysia since 1980s (which are still kept at historical BV of <MYR1psf). The jewel among its land bank is over 7,000 acres of land in Iskandar where the Johor Premium Outlet is located. Another prime land is its 1,000 acres in Sepang, of which 430 acres is located next to the Sepang F1 Circuit and near KL International Airport.
Valuation: Our MYR10.90 TP is based on SOP (based on CPO ASP assumption of MYR2,600/t for 2014-15).
First Resources (FR SP)
BUY
Current price: SGD1.97
Target price: SGD2.39
One of the region’s most cost-efficient producers with a sizable planted nucleus oil palm estates of 126k ha.
Given FR’s young age profile of ~8years, we expect 10% 2012-15 CAGR in FFB output.
Healthy net gearing of <15% to embark on growth, backed by plantable reserves of ~100k ha. Its new planting target is 15k ha p.a (including plasma).
FR has good long term growth proposition.
Valuation: Our SGD2.39 TP is based on 15x 2014 PER (based on CPO ASP assumption of MYR2,600/t for 2014-15).
Astra Agro Lestari (AALI IJ)
BUY
Current price: IDR21,350
Target price: IDR28,000
AALI provides exposure to the palm oil sector, which benefits from the bottoming-out CPO price, low production costs and weaker rupiah.
The 43k ha of AALI’s palm oil crops planted in 2006-2008 is entering prime maturity age, providing support to volume and allowing for a more aggressive replanting program of its older palm oil crops. The new crops are expected to carry a higher yield vs older crops due to higher tree density and better clones of palm trees.
Earnings sensitivity to palm oil price is high, with a 10% increase in the selling price translating into a 25% increase in earnings.
Valuation: BUY with a TP of IDR28,000 based on EV/ha of USD16,500.
Small & Mid Cap
Sarawak Oil Palms (SOP MK)
HOLD
Current price: MYR6.40
Target price: MYR6.30
Pure Sarawak planter with a refinery, with one of the top 10 largest planted areas among Malaysian listed plantation companies.
Relatively young oil palm trees of average 8.5 years. 29% immature estates would deliver a 12% 2012-15 CAGR in FFB production.
Has home ground advantage in securing more land in Sarawak.
Medium term catalyst: ~5,000 acres for property development in Miri. Starts in 2014.
Under-researched. Fundamentals intact for long-term investors. Currently trades at 13.8x 2015 PER and decent EV/planted ha of MYR45,000.
Valuation: Our MYR6.30 TP is based on 15x 2014 PER (based on CPO ASP assumption of MYR2,600/t for 2014-15).
February 05, 2014 9
Plantations
Small & Mid Cap (continued)
TSH Resources (TSH MK)
BUY
Current price: MYR2.77
Target price: MYR3.40
Essentially an upstream oil palm plantation player as its key earnings driver. Other businesses include cocoa and wood products manufacturing.
Bolstered by its young average tree age profile of 7 years, FFB production is expected to grow at a 3-year CAGR of 19.4%. TSH also has vast unplanted land of 92,335ha that would provide sustainable long term production growth.
Resilient earnings: TSH’s robust production growth and its refinery JV will cushion its earnings against fluctuations in CPO price.
Valuation: Our MYR3.40 TP is based on 19x 2014 PER (based on CPO ASP assumption of MYR2,600/t for 2014-15), translating to an undemanding PEG of 0.7x.
Ta Ann (TAH MK)
BUY
Current price: MYR4.08
Target price: MYR4.50
Its upstream plantation in Sarawak would be its main key earnings driver in the medium term. Other businesses include logging and reforestation concessions in Sarawak, and plywood manufacturing.
Young average tree age profile of 6 years with expected strong 3-year forward 17% CAGR in FFB growth output; backed by 23% immature estates.
Positive catalysts: (i) turnaround of its plywood division and (ii) Japan reconstruction accelerates and boost plywood demand.
Under-appreciated. ~10x 2015 PER and EV/planted hectare at ~MYR31,000.
Valuation: Our MYR4.50 TP is based on 15x 2014 PER (based on CPO ASP assumption of MYR2,600/t for 2014-15).
TH Plantations (THP MK)
SELL
Current price: MYR1.72
Target price: MYR1.28
THP’s aggressive landbank acquisitions in 2012 (albeit at lofty prices) have raised its profile as one of Malaysia’s top 10 largest listed plantation groups in terms of planted acreage (66,890 ha planted).
However, THP would only be able to reap positive gains from the acquisitions in 3-5 years when the young oil palm estates mature.
Its young estates are relatively lower yielding, and thus would have high cost of production pert CPO tonne. In addition, THP would need to incur substantial interest cost for borrowings incurred to acquire the estates and higher amortization cost.
Valuation is lofty at ~20x 2014 PER. Our MYR1.28 TP is based on 14x 2014 PER (based on CPO ASP assumption of MYR2,600/t for 2014-15).
Bumitama Agri (BAL SP)
BUY
Current price: SGD0.90
Target price: SGD1.14
One of the fastest growing plantation companies in our coverage universe, having planted an average of ~9,700 ha of nucleus area p.a over the past 9 years.
Sizeable nucleus planted area of 101k ha with young oil palm trees of ~6 years old and robust growth ~21% 2012-15 CAGR in FFB output.
With plantable reserves of ~60,000 ha, BAL targets 15k ha of new planting each year.
Valuation: Our SGD1.14 TP is based on 16x 2014 PER (based on CPO ASP assumption of MYR2,600/t for 2014-15).
February 05, 2014 10
Plantations
Research Offices
REGIONAL
WONG Chew Hann, CA
Regional Head of Institutional Research
(603) 2297 8686 [email protected]
ONG Seng Yeow
Regional Head of Retail Research
(65) 6432 1453 [email protected]
Alexander GARTHOFF
Institutional Product Manager
(852) 2268 0638 [email protected]
ECONOMICS
Suhaimi ILIAS
Chief Economist
Singapore | Malaysia
(603) 2297 8682 [email protected]
Luz LORENZO
Philippines
(63) 2 849 8836 [email protected]
Tim LEELAHAPHAN
Thailand (662) 658 1420 [email protected]
JUNIMAN
Chief Economist, BII
Indonesia
(62) 21 29228888 ext 29682 [email protected]
Josua PARDEDE
Economist / Industry Analyst, BII
Indonesia
(62) 21 29228888 ext 29695 [email protected]
MALAYSIA
WONG Chew Hann, CA Head of Research (603) 2297 8686 [email protected] • Strategy • Construction & Infrastructure
Desmond CH’NG, ACA (603) 2297 8680 [email protected] • Banking & Finance
LIAW Thong Jung (603) 2297 8688 [email protected] • Oil & Gas - Regional • Shipping
ONG Chee Ting, CA (603) 2297 8678 [email protected] • Plantations - Regional
Mohshin AZIZ (603) 2297 8692 [email protected] • Aviation - Regional • Petrochem
YIN Shao Yang, CPA (603) 2297 8916 [email protected] • Gaming – Regional • Media
TAN Chi Wei, CFA (603) 2297 8690 [email protected] • Power • Telcos
WONG Wei Sum, CFA (603) 2297 8679 [email protected] • Property & REITs
LEE Yen Ling (603) 2297 8691 [email protected] • Building Materials • Glove Producers
CHAI Li Shin (603) 2297 8684 [email protected] • Plantation • Construction & Infrastructure
KANG Chun Ee (603) 2297 8675 [email protected] • Consumer
Ivan YAP (603) 2297 8612 [email protected] • Automotive
LEE Cheng Hooi Regional Chartist (603) 2297 8694 [email protected]
Tee Sze Chiah Head of Retail Research (603) 2297 6858 [email protected]
HONG KONG / CHINA
Howard WONG Head of Research (852) 2268 0648 [email protected] • Oil & Gas - Regional
Alexander LATZER (852) 2268 0647 [email protected] • Metals & Mining - Regional
Alison FOK (852) 2268 0630 [email protected] • Consumer
Jacqueline KO, CFA (852) 2268 0633 [email protected] • Consumer
Karen KWAN (852) 2268 0640 [email protected] • Property & REITs
Osbert TANG, CFA (852) 21 5096 8370 [email protected] • Transport & Industrials
Philip TSE, CFA FRM (852) 2268 0643 [email protected] • Property & REITs
Ricky WK NG, CFA (852) 2268 0689 [email protected] • Utilities & Renewable Energy
Simon QIAN, CFA (852) 2268 0634 [email protected] • Telecom & Internet
Steven ST CHAN (852) 2268 0645 [email protected] • Banking & Financials
Warren LAU (852) 2268 0644 [email protected] • Technology – Regional
William YANG (852) 2268 0675 [email protected] • Technology – Regional
INDIA
Jigar SHAH Head of Research
(91) 22 6623 2601
• Oil & Gas • Automobile • Cement
Anubhav GUPTA
(91) 22 6623 2605
• Metal & Mining • Capital Goods • Property
Urmil SHAH
(91) 22 6623 2606 [email protected]
• Technology • Media
SINGAPORE
NG Wee Siang Head of Research (65) 6432 1467 [email protected] • Banking & Finance
Gregory YAP (65) 6432 1450 [email protected] • SMID Caps – Regional • Technology & Manufacturing • Telcos
Wilson LIEW (65) 6432 1454 [email protected] • Property Developers
ONG Kian Lin (65) 6432 1470 [email protected] • S-REITs
James KOH (65) 6432 1431 [email protected] • Consumer - Regional
YEAK Chee Keong, CFA (65) 6432 1460 [email protected] • Offshore & Marine
Derrick HENG (65) 6432 1446 [email protected] • Transport (Land, Shipping & Aviation)
WEI Bin (65) 6432 1455 [email protected] • Commodity • Logistics • S-chips
John CHEONG (65) 6432 1461 [email protected] • Small & Mid Caps • Healthcare
INDONESIA
Wilianto IE Head of Research (62) 21 2557 1125 [email protected] • Strategy
Rahmi MARINA (62) 21 2557 1128 [email protected] • Banking & Finance
Aurellia SETIABUDI (62) 21 2953 0785 [email protected] • Property
Anthony YUNUS (62) 21 2557 1136 [email protected] • Consumer • Poultry
Isnaputra ISKANDAR (62) 21 2557 1129 [email protected] • Metals & Mining • Cement
Pandu ANUGRAH (62) 21 2557 1137 [email protected] • Infrastructure • Construction • Transport
Janni ASMAN (62) 21 2953 0784 [email protected] • Cigarette • Healthcare • Retail
Lucky ARIESANDI, CFA (62) 21 2557 1127 [email protected] • Telcos • Media
PHILIPPINES
Luz LORENZO Head of Research (63) 2 849 8836 [email protected] • Strategy
Laura DY-LIACCO (63) 2 849 8840 [email protected] • Utilities • Conglomerates • Telcos
Lovell SARREAL (63) 2 849 8841 [email protected] • Consumer • Media • Cement
Rommel RODRIGO (63) 2 849 8839 [email protected] • Conglomerates • Property • Gaming • Ports/ Logistics
Katherine TAN (63) 2 849 8843 [email protected] • Banks • Construction
Ramon ADVIENTO (63) 2 849 8845
[email protected] • Mining
THAILAND
Maria LAPIZ Head of Institutional Research Dir (66) 2257 0250 | (66) 2658 6300 ext 1399 [email protected] • Consumer / Materials
Jesada TECHAHUSDIN, CFA (66) 2658 6300 ext 1394 [email protected] • Financial Services
Kittisorn PRUITIPAT, CFA, FRM (66) 2658 6300 ext 1395 [email protected] • Real Estate
Sittichai DUANGRATTANACHAYA (66) 2658 6300 ext 1393 [email protected] • Services Sector
Sukit UDOMSIRIKUL Head of Retail Research
(66) 2658 6300 ext 5090 [email protected]
Mayuree CHOWVIKRAN (66) 2658 6300 ext 1440 [email protected] • Strategy
Padon VANNARAT (66) 2658 6300 ext 1450 [email protected] • Strategy
Surachai PRAMUALCHAROENKIT (66) 2658 6300 ext 1470 [email protected] • Auto • Conmat • Contractor • Steel
Suttatip PEERASUB (66) 2658 6300 ext 1430 [email protected] • Media • Commerce
Sutthichai KUMWORACHAI (66) 2658 6300 ext 1400 [email protected] • Energy • Petrochem
Termporn TANTIVIVAT (66) 2658 6300 ext 1520 [email protected] • Property
Woraphon WIROONSRI (66) 2658 6300 ext 1560 [email protected] • Banking & Finance
Jaroonpan WATTANAWONG (66) 2658 6300 ext 1404 [email protected] • Transportation • Small cap
Chatchai JINDARAT (66) 2658 6300 ext 1401 [email protected] • Electronics
VIETNAM
LE Hong Lien, ACCA Head of Institutional Research (84) 844 55 58 88 x 8181 [email protected] • Strategy • Consumer • Diversified • Utilities
THAI Quang Trung, CFA, Deputy Manager, Institutional Research (84) 844 55 58 88 x 8180 [email protected] • Real Estate • Construction • Materials
TRUONG Thanh Hang (84) 844 55 58 88 x 8085 [email protected] • Consumer
Le Nguyen Nhat Chuyen (84) 844 55 58 88 x 8082 [email protected] • Oil & Gas NGUYEN Thi Ngan Tuyen, Head of Retail Research
(84) 8 44 555 888 x 8081 [email protected] • Food & Beverage • Oil&Gas • Banking
NGUYEN Trung Hoa, Dy Head of Retail Research (84) 8 44 555 888 x 8088 [email protected] • Macro • Steel • Real estate
TRINH Thi Ngoc Diep (84) 4 44 555 888 x 8208 [email protected] • Technology • Utilities • Construction
TRUONG Quang Binh (84) 4 44 555 888 x 8087 [email protected] • Rubber plantation • Tyres and Tubes • Oil&Gas
PHAM Nhat Bich (84) 8 44 555 888 x 8083 [email protected] • Consumer • Manufacturing • Fishery
NGUYEN Thi Sony Tra Mi (84) 8 44 555 888 x 8084 [email protected] • Port operation • Pharmaceutical
• Food & Beverage
February 05, 2014 11
Plantations
APPENDIX I: TERMS FOR PROVISION OF REPORT, DISCLAIMERS AND DISCLOSURES
DISCLAIMERS
This research report is prepared for general circulation and for information purposes only and under no circumstances should it be considered or intended as an offer to sell or a solicitation of an offer to buy the securities referred to herein. Investors should note that values of such securities, if any, may fluctuate
and that each security’s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from the relevant jurisdiction’s stock exchange in the equity analysis. Accordingly, investors’ returns may be less than
the original sum invested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this report. Investors should therefore seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report.
The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by Maybank
Investment Bank Berhad, its subsidiary and affiliates (collectively, “MKE”) and consequently no representation is made as to the accuracy or completeness of this report by MKE and it should not be relied upon as such. Accordingly, MKE and its officers, directors, associates, connected parties and/or employees (collectively, “Representatives”) shall not be liable for any direct, indirect or consequential losses or damages that may arise from the use or reliance of this report. Any information, opinions or recommendations contained herein are subject to change at any time, without prior notice.
This report may contain forward looking statements which are often but not always identified by the use of words such as “anticipate”, “believe”, “estimate”, “intend”, “plan”, “expect”, “forecast”, “predict” and “project” and statements that an event or result “may”, “will”, “can”, “should”, “could” or “might” occur or be achieved and other similar expressions. Such forward looking statements are based on assumptions made and information currently available to us and are subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed in any forward looking
statements. Readers are cautioned not to place undue relevance on these forward-looking statements. MKE expressly disclaims any obligation to update or revise any such forward looking statements to reflect new information, events or circumstances after the date of this publication or to reflect the occurrence of unanticipated events.
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This report is prepared for the use of MKE’s clients and may not be reproduced, altered in any way, transmitted to, copied or distributed to any other party in whole or in part in any form or manner without the prior express written consent of MKE and MKE and its Representatives accepts no liability whatsoever for the actions of third parties in this respect.
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Malaysia
Opinions or recommendations contained herein are in the form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis.
Singapore
This report has been produced as of the date hereof and the information herein may be subject to change. Maybank Kim Eng Research Pte. Ltd. (“Maybank KERPL”) in Singapore has no obligation to update such information for any recipient. For distribution in Singapore, recipients of this report are to contact Maybank KERPL in Singapore in respect of any matters arising from, or in connection with, this report. If the recipient of this report is not an accredited investor, expert investor or institutional investor (as defined under Section 4A of the Singapore Securities and Futures Act), Maybank KERPL shall be legally liable for the contents of this report, with such liability being limited to the extent (if any) as permitted by law.
Thailand
The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the
perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey may be changed after that date. Maybank Kim Eng Securities (Thailand) Public Company Limited (“MBKET”) does not confirm nor certify the accuracy of such survey result.
Except as specifically permitted, no part of this presentation may be reproduced or distributed in any manner without the prior written permission of MBKET. MBKET accepts no liability whatsoever for the actions of third parties in this respect.
US
This research report prepared by MKE is distributed in the United States (“US”) to Major US Institutional Investors (as defined in Rule 15a-6 under the
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should satisfy yourself before reading it that Maybank KESUSA is permitted to provide research material concerning investments to you under relevant legislation and regulations.
UK
This document is being distributed by Maybank Kim Eng Securities (London) Ltd (“Maybank KESL”) which is authorized and regulated, by the Financial Services Authority and is for Informational Purposes only. This document is not intended for distribution to anyone defined as a Retail Client under the Financial Services and Markets Act 2000 within the UK. Any inclusion of a third party link is for the recipients convenience only, and that the firm does not take any
responsibility for its comments or accuracy, and that access to such links is at the individuals own risk. Nothing in this report should be considered as constituting legal, accounting or tax advice, and that for accurate guidance recipients should consult with their own independent tax advisers.
February 05, 2014 12
Plantations
Disclosure of Interest
Malaysia: MKE and its Representatives may from time to time have positions or be materially interested in the securities referred to herein and may further act as market maker or may have assumed an underwriting commitment or deal with such securities and may also perform or seek to perform investment banking services, advisory and other services for or relating to those companies.
Singapore: As of February 05, 2014, Maybank KERPL and the covering analyst do not have any interest in any companies recommended in this research report.
Thailand: MBKET may have a business relationship with or may possibly be an issuer of derivative warrants on the securities /companies mentioned in the research report. Therefore, Investors should exercise their own judgment before making any investment decisions. MBKET, its associates, directors, connected parties and/or employees may from time to time have interests and/or underwriting commitments in the securities mentioned in this report.
Hong Kong: KESHK may have financial interests in relation to an issuer or a new listing applicant referred to as defined by the requirements under Paragraph
16.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.
As of February 05, 2014, KESHK and the authoring analyst do not have any interest in any companies recommended in this research report.
MKE may have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in
issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the investment concerned or a related investment and may receive compensation for the services provided from the companies covered in this report.
OTHERS
Analyst Certification of Independence
The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research analyst’s compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.
Reminder
Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable
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No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior consent of MKE.
Definition of Ratings
Maybank Kim Eng Research uses the following rating system
BUY Return is expected to be above 10% in the next 12 months (excluding dividends)
HOLD Return is expected to be between - 10% to +10% in the next 12 months (excluding dividends)
SELL Return is expected to be below -10% in the next 12 months (excluding dividends)
Applicability of Ratings
The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies.
DISCLOSURES
Legal Entities Disclosures
Malaysia: This report is issued and distributed in Malaysia by Maybank Investment Bank Berhad (15938-H) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets and Services License issued by the Securities Commission in Malaysia. Singapore: This material is issued and distributed in Singapore by Maybank KERPL (Co. Reg No 197201256N) which is regulated by the Monetary Authority of Singapore. Indonesia: PT Kim Eng
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KESUSA is a member of/ and is authorized and regulated by the FINRA – Broker ID 27861. UK: Maybank KESL (Reg No 2377538) is authorized and regulated by the Financial Services Authority.
February 05, 2014 13
Plantations
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