Good times ahead for Kulim

Tuesday May 27, 2008 MYT 12:01:17 PM The StarOnline

Good times ahead for Kulim

KUALA LUMPUR: Kulim (Malaysia) Bhd reported first quarter net profit of RM98.19mil, beating consensus estimates and showing that the group had passed its darkest hours, said OSK Investment Research.

The research house said Tuesday that Kulim’s plantations in Malaysia, which were struggling with forward sale and weather disruption last year, were now profitable.

While some forward sale remains, production had recovered and Q1 fresh fruit bunches (FFB) production of 131,00 tonnes was even higher than the first quarter of 2006’s production of 111,000 tonnes.

OSK Research said while 50.5%-owned New Britain’s effective profit contribution was still the biggest now, Kulim’s Malaysian plantations would match it this year.

“With all divisions performing at least as well as their peers, the market should start to attach more value to its unlisted Malaysian plantation and oleochemical segment, which have zero implied value at the moment.

“Consensus expectation is too pessimistic and has not factored in its Malaysia plantation turnaround. A re-rating appears inevitable. Maintain Buy (at RM8.65, target price RM13.80),” it said.

Elaborating on the first quarter earnings, OSK Research said the core first quarter net profit at RM98.19mil compared to its full year forecast of RM469mil.

“While annualised Q1 number was 16.2% lower than our forecast, Q1 is a seasonally weak quarter particularly for Malaysian plantations. Hence, we consider the results to be within our expectations but 19.6% above consensus,” it said.

OSK Research said Kulim was working towards achieving full sustainable palm oil compliance by the end of the year.

“We believe this is important as sustainable palm oil certification will come into effect this year and companies with sustainable practices will be able to command higher selling prices,” it added.