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IPO Note, 16 July 2014
Tanah Makmur (TMK MK) Not Rated Agriculture - Plantation Target Price: NA
Market Cap: MYR497.7m IPO Price: MYR1.25
Growing Into Prosperity
Macro
2.00
Risks
2.00
Growth
2.00
Value
2.00
Avg Turnover (MYR/USD) na
Cons. Upside (%) na
52-wk Price low/high (MYR) na
Free float (%) 33.9
Share outstanding (m) IPO expected on 17 July with an offering of 101,590,000 shares (representing 25.51% of its enlarged issued and paid up capital)
Shareholders (%)
LKPP 20.0
Tengku Abdullah Ibni Sultan Hj Ahmad Shah
13.7
TAS Industries 12.5
Shariah compliant
Hoe Lee Leng +603 9207 7605
Malaysia Research +603 9207 7688
Forecasts and Valuations Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F
Total turnover (MYRm) 282 208 243 303 319
Reported net profit (MYRm) 80.6 62.5 42.9 62.8 67.4
Recurring net profit (MYRm) 80.6 62.5 42.9 62.8 67.4
Recurring net profit growth (%) 0.0 (22.5) (31.4) 46.4 7.3
Recurring EPS (MYR) 0.47 0.16 0.11 0.16 0.17
DPS (MYR) 0.00 0.00 0.00 0.05 0.05
Return on average equity (%) 0.0 21.8 13.6 18.0 16.5
Net debt to equity (%) 9.9 1.2 2.9 9.7 13.0
Our vs consensus EPS (adjusted) (%) (2.8) (2.6)
Source: Company data, RHB estimates
Tanah Makmur, a Pahang-based palm oil player with exposure to property development and bauxite mining, will be listed on the Main Market on 17 July. Earnings growth prospects are driven by the company’s well-planned expansion strategy for the next few years. This is expected to spur earnings from all its business segments. We estimate the value of the stock at MYR1.74, based on 10x FY15F P/E.
Key investment highlights. Tanah Makmur is a palm oil company
based in Pahang with a planted acreage of 17,969ha. We project for the company to post an approximately 24% earnings compound annual growth rate (CAGR) over the next two years. This will be underpinned by the capacity expansion of its oil mill, improving fresh fruit bunches (FFB) yield, future property launches and a new stream of income from its bauxite mining business. Investors should expect a decent dividend yield of 4.1%, since management intends to adopt a dividend policy of paying out a minimum of 30% of net profit.
Royal links. Tanah Makmur has close ties to Pahang’s royal family as
well as the State Government. The crown prince of Pahang and his family, via TAS Industries SB, have the largest stake in the company (26.2% in total). The state’s Lembaga Kemajuan Perusahaan Pertanian Negeri Pahang (LKPP) agency holds the second largest stake (20.0%). The company’s strong relationship with these parties has allowed it to enjoy continuous support from the State Government, particularly with regards to land matters.
MYR1.74 FV, with a potential 39% upside. We value Tanah Makmur at
MYR1.74, which is based on 10x FY15F P/E. We derive the target P/E by applying a 10% discount to the 11.2x average multiple of its peers. This is due to the company’s smaller landbank and lower market capitalisation when compared to peers such as Far East Holdings (FEH MK, NR), Kim Loong Resources (KIML MK, NR), Sarawak Plantation (SPLB MK, NR) and United Malacca (UMR MK, NR).
Risks: Reliance on foreign workers; Tanah Makmur’s plantation
business is labour intensive. The company relies heavily on foreign labour, primarily Indonesian workers. Any shortage of workers may affect the operations at the company’s plantation estates. Unfavourable weather conditions; Insufficient rainfall or, conversely, excessive
downpour that can cause flooding can adversely affect the quantity of FFB harvested and lower yields. Other risks include the outbreak of
diseases or damage to its oil palm trees at its plantations could also disrupt production.
Commodity price fluctuations. As is with commodities, CPO and PK
prices are also influenced by cyclical factors and are prone to market volatility. Observations based on the MPOB’s published figures show that annual average CPO prices have risen as high as MYR3,219/tonne in 2011 and dropped to as low as MYR1,394/tonne in 2005
Tanah Makmur (TMK MK)
16 July 2014
See important disclosures at the end of this report 2
IPO Details Main Market listing. Tanah Makmur is set to list on the Main Market of Bursa
Malaysia on 17 July with an offering of 101,590,000 shares. This represents 25.51% of its enlarged issued and paid up capital. Based on the IPO price of MYR1.25/share, the company’s total market capitalisation will be MYR497.7m. Tanah Makmur expects to raise about MYR65.18m from the public issue. Of the proceeds, 43.73% will be utilised to fund its new estate development. This includes new field developments at Ladang Ulu Lepar and Ladang Alur Seri, and the replanting activities at its plantations at Ladang Charuk Puting, Ladang Sungai Sering and Ladang Empang Jaleh. All of the company’s plantation acreage is in Pahang. Of the remaining balance of the proceeds, 20.06% has been earmarked for the repayment of bank borrowings, 19.95% for infrastructure works at its KotaSAS township, 8.59% for listing expenses and 7.67% for the expansion of its palm oil mill in Pekan, Pahang. The plant’s current annual capacity is 187,200 tonnes per annum.
Figure 1: Utilisation of proceeds
Details of utilisation of proceeds Amount of total proceeds
raised (MYR)
Percentage of total
proceeds raised
Estate development 28,500,000 44%
Palm oil mill expansion 5,000,000 8%
Infrastructure works at the KotaSAS Township 13,000,000 20%
Repayment of bank borrowings 13,075,000 20%
Listing expenses 5,600,000 9%
Total gross proceeds 65,175,000 100%
Source: Company prospectus
Company Background Introduction. Tanah Makmur was primarily an oil palm plantation company before it
expanded to include palm oil milling, property development and the ancillary business of mining for bauxite. The company is currently operating in Pahang only. All its oil palm plantation estates and its township development – KotaSAS – are located in Pahang. Historically, all of its plantation business was held by Kurnia Setia Bhd, a company that was previously listed by LKPP on the Malaysia Stock Exchange on 1 Dec 1984. In 2009, Tanah Makmur offered to acquire the entire business and undertakings – including all assets and liabilities – of Kurnia Setia, which resulted in the privatisation of the latter. This exercise was completed in 2010 and Kurnia Setia was officially delisted on 21 Dec of that year. Figure 2: Tanah Makmur’s plantation estates and palm oil mill
Source: Company prospectus
Tanah Makmur (TMK MK)
16 July 2014
See important disclosures at the end of this report 3
Plantation business. Tanah Makmur currently operates 13 plantation estates in
Pahang with an aggregate plantation land acreage of 17,969ha. Of this, 65% is self-owned and the remaining 35% is leased from LKPP, a Pahang State Government body that holds a 20% stake in the company. In FY13, Tanah Makmur’s estates produced about 232,605 tonnes of FFB. These were sold to the company’s own palm oil mill (49.2% of the total produced, which were supplied by seven of its estates), third-party traders and other millers. Tanah Makmur believes that by having its own mill, higher oil extraction rate (OER) is achievable due to better control of the milling process. Easy access to the mill and its strategic location helps ensure timely delivery of the FFB, which, in turn, allows for quick processing post harvesting. Tanah Makmur ventured into downstream activities with the production of CPO, palm kernel (PK) and compost fertiliser in July 2012.
Property development. Tanah Makmur ventured into the property development
business in 2008. This was undertaken in order to maximise the potential value of its land via the commencement of its maiden township development called KotaSAS in Kuantan, Pahang. The project is being developed on part of the company’s Ladang Bukit Goh estate and measures approximately 1,500 acres. KotaSAS’ development is slated to span over the next 15 years. Ancillary to this business, Tanah Makmur has also commenced mining bauxite after obtaining the necessary licenses. This business came about when it discovered bauxite deposits while clearing land for its property development initiative. The mining will be undertaken for a 3-year period, subject to renewal of the necessary licenses.
Figure 3: Tanah Makmur’s group structure
Tanah Makmur
Plantation
Kurnia Setia100%
Alur Cemerlang
100%
SJ Palm Oil Mill
100%
Alur Lestari
70%
Alur Gemilang
60%
Alur Seri
60%
Property development
KotaSAS
100%
Kurnia Setia Engineering
100%
Kreatif Selaras Land
100%
Kurnia Setia Trading
100%
Kreatif Sinar Gabungan
65%
KotaSAS OMNI
65%
Kreatif Selaras Mining
60%
Tanah Makmur KotaSAS
60%
Source: Company prospectus
Figure 4: Tanah Makmur's board of directors
Name Age Designation
Tengku Tan Sri Mariam bt Sultan Ahmad Shah 59 Non-independent non-executive director
Tengku Dato' Zubir bin Tengku Dato' Ubaidillah 52 Managing director
Tengku Dato' Ahmad Faisal bin Tengku Ibrahim 48 Non-independent non-executive director
Dato' Wan Bakri bin Wan Ismail 60 Non-independent non-executive director
Tan Sri Dato' Sri Abdul Aziz bin Abdul Rahman 68 Independent non-executive director
Dato' Cheong Keap Tai 66 Independent non-executive director
Dato' Dr Zaha Rina bt Zahari 53 Independent non-executive director
Dato' Thavalingam A/L C Thavarajah 49 Independent non-executive director
Darawati Hussain bt Dato' Seri Abdul Latiff 45 Independent non-executive director
Tengku Dato' Uzir bin Tengku Dato' Ubaidillah 55 Alternate director
Source: Company prospectus
Tanah Makmur (TMK MK)
16 July 2014
See important disclosures at the end of this report 4
Figure 5: Tanah Makmur’s key management
Name Age Designation
Tengku Dato' Zubir bin Tengku Dato' Ubaidillah 52 Managing director
Teh Foo Hock 49 Chief financial oficer
Suzilah bt Haji Wahid 53 Company secretary
Abdul Razak bin Md Yusof 56 General manager (finance and accounts)
Alias bt Awang 52 General manager (plantation)
Azlan Shah bin Hj Mohd Yusoh 40 Senior project manager
Tumaran bin Wongso 54 Head of human resources and administration
Ashraf bin Abbas 51 Head of corporate development
Mohd Farizan bin Md Dalimi 34 Head of KotaSAS (technical)
Tengku Amir Nasser Ibin Tengku Ibrahim 28 Head of KotaSAS (administration and finance)
Hishamuddin bin Mohd Yunus 36 Head of palm oil mill operations
Mohamed Azmaili bin Ismail 57 Head of internal audit
Source: Company prospectus
Key management personnel
Tengku Dato’ Zubir bin Tengku Dato’ Ubaidillah. Tengku Dato’ Zubir had 19 years
of experience in various companies prior to joining Kurnia Setia in 2005 as its general manager of corporate development. He was promoted to general manager a year later. Subsequent to the privatisation of Kurnia Setia, he was transferred to Tanah Makmur where he assumed his current position as MD.
Teh Foo Hock. Prior to his recent appointment as Tanah Makmur’s CFO, Teh was
attached to PricewaterhouseCoopers (PwC) in 1985-1997, where he held various positions. He joined public-listed Kinsteel (KSB MK, NR) in 1997 where he held the position of group accountant (and later head of treasury) before he left in April 2014.
Business Overview Tanah Makmur’s planted areas stand at 13,529ha, of which 11,729ha is mature and the rest of 1,800ha is immature as at 15 May. There are another 3,093ha that can be planted up going forward. The company’s plantation estates are observed to have produced a higher FFB yield/ha when compared to the Malaysian Palm Oil Board (MPOB) industry average for the entire state of Pahang, West Malaysia and Malaysia as a whole (see Figure 7). Tanah Makmur was able to achieve an average of 20.43m tonnes/ha in FY13, ie in line with its 15-year average. This was due to its adoption of good practices in the process of cultivating, harvesting, manuring and weeding.
Figure 6: Tanah Makmur’s oil palm age profile
Source: Company prospectus
Tanah Makmur (TMK MK)
16 July 2014
See important disclosures at the end of this report 5
Figure 7: Tanah Makmur’s FFB yield comparison
2011 2012 2013
Tanah Makmur
FFB Production (tonnes) 240,184 229,890 232,605
Matured plantation (ha) 10,107 10,416 11,388
FFB yield per ha (tonnes/ha)
Tanah Makmur 23.76 22.07 20.43
Pahang 18.97 18.94 20.21
West Malaysia 19.24 19.05 19.26
Malaysia (inc Sabah & Sarawak) 19.69 18.89 19.02
For the year ended 31 December
Source: Company prospectus
CPO mill set up in 2012. Tanah Makmur set up a CPO mill in July 2012, which has
a 30 tonne/hour capacity. The capacity of this mill could be expanded to 75 tonnes/hour. Having such capabilities has allowed the company to better manage its oil yield and improve profits. It achieved an average OER of 19.98% in 2013, in line with the national average. The CPO mill is currently running at an estimated average utilisation rate of 85%.
Figure 8: CPO and PK extraction rates
For the July- Dec 2012 period For year ended Dec 2013
Intake of FFB (tonnes)
From own estates 58,019.67 77,965.25
From third party 11,801.28 80,567.76
Total 69,820.95 158,533.01
Output of CPO and PK (tonnes)
Production of CPO 14,243.39 31,676.18
Production of PK 3,564.25 9,465.26
Average OER (%)
Tanah Makmur 20.58 19.98
Pahang 20.32 20.02
Malaysia 20.34 20.25
Average PK recovery rate (%)
Tanah Makmur 5.14 5.97
Pahang 5.26 5.44
Malaysia 5.05 5.12
Source: Company prospectus
Township development. The KotaSAS township started with a joint-venture (JV)
agreement signed between KotaSAS and OMNI Holdings SB, a property development company based in Kuantan. The JV sought to develop and construct a township in Bukit Goh, with the project focused on developing residential, commercial, institutional and government properties. KotaSAS was designed to come equipped with necessary township facilities like schools, recreational parks and lakes. The take-up rate for the properties within the development has been good, with a total of 1,045 residential units sold out of the 1,074 launched since Jan 2010.
Tanah Makmur (TMK MK)
16 July 2014
See important disclosures at the end of this report 6
Figure 9: Types of properties developed and sold at KotaSAS
Name and development Type of property No of units
developed
No of
units
sold
Year/month of sales launch % of
units
sold
Precinct 1 (44.70 acres)
Sinaran Single storey semi-detached (SSSD) 54 54 Jan 2010 100%
Embun Double storey semi-detached (DSSD) 24 24 Jan 2010 100%
Bayu DSSD 74 74 Jan 2010 100%
Senja Double storey link (DSL) 34 34 Jan 2010 100%
Suria 1 DSL 132 132 Jan 2010 100%
Suria 2 DSL 7 7 Jan 2010 100%
Total 325 325 100%
Precinct 2 (46.00 acres)
Fajar 1 Single storey link (SSL) 87 87 April 2011 100%
Fajar 2 SSL 94 92 June 2011 98%
Bintang Single storey super-link 36 36 June 2011 100%
Cahaya SSL 70 70 June 2011 & April 2012 100%
Pancaran SSSD 16 16 June 2011 & April 2012 100%
Senja 2 DSL 16 16 April 2012 100%
Total 319 317 99%
Precinct 3 (38.00 acres)
Ceria DSL 68 68 June 2012 100%
Pancaran SSSD 40 40 June 2012 & Feb 2013 100%
Rembulan DSL 94 94 Feb 2013 100%
Ceria 2 DSL 45 42 Sept 2013 93%
Pancaran 2 DSSD 16 16 Sept 2013 100%
Sinaran 2 2.5 storey semi-detached (2.5 SSD) 18 16 Sept 2013 89%
Total 281 276 98%
Lakeside 1 (16.40 acres)
Ceria 2 DSL 105 96 Nov 2013 91%
Pancaran 2 DSSD 22 18 Nov 2013 82%
Sinaran 2 2.5 SSD 22 13 Nov 2013 59%
Total 149 127 85%
Grand Total 1074 1045 97%
Source: Company prospectus
Bauxite extraction. Bauxite was discovered in its Ladang Bukit Goh acreage during
clearing of the land for the development of KotaSAS. An evaluation report estimates that the total tonnage of bauxite deposits on the surveyed lands stands at 1,426,500 tonnes. The company has been extracting and selling bauxite since April 2014.
Tanah Makmur (TMK MK)
16 July 2014
See important disclosures at the end of this report 7
Strategies Future growth to be driven by its replanting and new planting programmes.
Tanah Makmur intends to improve its oil palm age profile by replanting its old mature plantation estates, which account for about 9.5% of its total planted area, as well as planting on its landbank reserves. The company plans to replant 2,061ha of its matured estates over the next four years. Tanah Makmur expects new planting activities at its Ladang Alur Seri and Ladang Ulu Lepar plantations – involving another 3,093ha of land – to be completed over the next three years. With the new plantings in place, Tanah Makmur’s total planted area is expected to further improve by 23% and this ought to provide some future output growth. Our estimates.
We project FFB growth of 3.4% for FY14 and 7.9% for FY15, after taking into account the planting and replanting programmes currently underway.
We assume a FFB yield of 20 tonnes/ha for FY14 and FY15.
We project CPO prices to increase to MYR2,700/tonne in FY14 and MYR2,900/tonne in FY15.
With the assumptions above, we expect Tanah Makmur to generate GPMs of 42% and 43% for FY14 and FY15 respectively for its plantation division. The company’s average production cost of MYR1,200-MYR1,300/tonne is in line with the industry average.
Figure 10: Tanah Makmur's replanting and new planting programmes
Average
Size of land age of Year planned for
Plantation estate with old palms (ha) old palms replanting/new planting
Replanting programmes
Ladang Charuk Puting 808.7 40 2014 and 2015
Ladang Sungai Sering 145 33 2014
Ladang Lembah Klau 974 24 2017 and 2018
Ladang Empang Jaleh 133.26 33 2014
Sub-total 2060.96
New planting programmes
Ladang Alur Seri 2023.00 - 2014 and 2015
Ladang Ulu Lepar 1069.67 - 2015 and 2016
Sub-total 3092.67
Grand total 5153.63
Source: Company prospectus
Continuous landbank expansion plan. Tanah Makmur plans to increase its
plantation landbank to at least 25,000ha over the next three years, ie by 39% from its current 17,969ha landbank. The company intends to achieve this by acquiring suitable land within Pahang, ie its primary concentration area. It may consider expanding into Sabah, Sarawak or overseas. Currently, Tanah Makmur has identified two pieces of greenfield plantation land in Kampong Bongsu (measuring 1,214ha) and Ulu Lepar (measuring 1,436ha), both in Pahang. The company is working with LKPP to secure the acquisition of this land from the State Government. Tanah Makmur has estimated that the acquisition of these two plots of land will cost approximately MYR10.0m (approximately MYR3,774/ha), which is inexpensive when compared with the industry average. Palm oil mill expansion to cater for anticipated FFB growth. Tanah Makmur
plans to expand the capacity of its palm oil mill by 2016. It is looking to boost capacity to 45 tonnes/hour from 30 tonnes/hour by upgrading the existing processing line at the mill. With the additional 15 tonnes/hour, it is targeting total CPO and PK production to increase by another 50%. The company expects expansion costs, estimated for a period of not more than eight months, to be at about MYR500,000. This will be funded by its IPO proceeds. We do not expect Tanah Makmur to have any problems in acquiring more external FFB to service the expanded CPO mill. Currently, the company acquires about 45% of FFB for its mill from external sources.
Tanah Makmur (TMK MK)
16 July 2014
See important disclosures at the end of this report 8
Potential overall GDV of MYR3.0bn for the KotaSAS township. Only around 9.7%
of the land has been developed thus far. KotaSAS still has around 1,355 acres of land for future development and we understand that the present GDV of MYR1.8bn could increase to a potential MYR3.0bn going forward, should a new state administrative complex and assembly hall be relocated to this township. By the end of 2014, Tanah Makmur also plans to launch 478 residential units, which will include the project’s first bungalows as well as 40 units of commercial shop lots valued at approximately MYR245m in GDV. New income stream from bauxite mining. We project an additional earnings boost
from Tanah Makmur’s bauxite mining business in FY14-FY16. The company, via its 60%-owned mining subsidiary Kreatif Selaras Mining SB, entered into an agreement with SE Satu SB, which saw the latter being appointed as the exclusive operator to mine and extract bauxite from the identified lands. Based on an indicative selling price of USD46/tonne – and estimated deposits of 1,426,500 tonnes – we project for Tanah Makmur to possibly generate a gross profit of MYR88.3m over the next three years from this mining business.
Risks Reliance on foreign workers. Tanah Makmur’s plantation business is labour
intensive. The company relies heavily on foreign labour, primarily Indonesian workers. 78.7% of its workforce of 1,006 employees is made up of foreign workers. Hence, any shortage of workers due to changes in the Government’s immigration policies may affect the operations at the company’s plantation estates. Unfavourable weather conditions and other inherent business risks. Insufficient
rainfall or, conversely, excessive downpour that can cause flooding can adversely affect the quantity of FFB harvested and lower yields. Such a decline in production may impact Tanah Makmur’s plantation earnings if there is no support from higher selling prices. Other than weather conditions, other risks include the outbreak of diseases or damage to its oil palm trees at its plantations can also disrupt production. Commodity price fluctuations. As is with commodities, CPO and PK prices are
also influenced by cyclical factors and are prone to market volatility. Observations based on the MPOB’s published figures show that annual average CPO prices have risen as high as MYR3,219/tonne in 2011 and dropped to as low as MYR1,394/tonne in 2005.
Figure 11: Movement of CPO and PK prices
Title:
Source:
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0.00
500.00
1000.00
1500.00
2000.00
2500.00
3000.00
3500.00
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
RM/M
T
Year
CPO PK
Source: MPOB
Tanah Makmur (TMK MK)
16 July 2014
See important disclosures at the end of this report 9
Key Investment Highlights The plantation segment is the anchor. Tanah Makmur’s plantation operations are
the company’s stable backbone, contributing 83-87% on average to its FY11-13 gross profit. The company’s property division, in comparison, accounted for 13-17% during the same period. We expect the plantation business to record gross profit growth of 3% and 11% for FY14 and FY15 respectively due to expected higher CPO prices and increased capacity at its CPO mill.
Figure 12: Percentage of gross profit contributions
Title:
Source:
Please fill in the values above to have them entered in your report
87% 86% 83%
64% 66%
13% 14% 17%
12% 11%
24% 22%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2011 2012 2013 2014F 2015F
Plantation Property Mining
Source: Company data, RHB estimates
Property provides growth. Tanah Makmur’s property business, being relatively new
to the company, has good growth prospects on the back of future property launches. With its favourable location (near the East Coast Highway and the Sultan Haji Ahmad Shah Airport), as well as the establishment of the East Coast Economic Region (ECER) – with Kuantan having been identified as a hub for commerce and trade under the ECER’s master plan – we expect Tanah Makmur’s property launches to be well received in the coming years. Figure 13: Map of the ECER
Source: ECER Development Council (ECERDC)
Tanah Makmur (TMK MK)
16 July 2014
See important disclosures at the end of this report 10
Figure 14: The ECER special economic zone
Source: ECER Development Council (ECERDC)
Bauxite mining provides additional earnings. We estimate Tanah Makmur’s new
stream of income from its bauxite mining unit to contribute 22-24% on average to its gross profits in FY14-FY15. Strong ties with the Pahang State Government. Tanah Makmur has a strong
working relationship with its major shareholder, LKPP, which is an agency of the State Government of Pahang. LKPP has been entrusted with the leadership role for the state’s agriculture sector and other similarly related activities. This agency has provided support to Tanah Makmur’s plantation business by facilitating in the acquisition and leasing of plantation lands. 30% dividend payout policy. Tanah Makmur has stated its intention to adopt a
dividend policy of paying out a minimum 30% of profit after tax. This policy is estimated to produce a decent net yield of 4.1% for FY15. 2-year earnings CAGR of 24%. Overall, we are projecting for Tanah Makmur to post
earnings growth of 44.5% for FY14 (coming from a lower base) and 7.1% for FY15. We expect this to be driven by single-digit growth in its plantation division, good take-up rates at future property launches in KotaSAS and the new revenue stream from its bauxite mining business. We extrapolate that every MYR100/tonne change in the price of CPO could affect earnings by 6-7% per annum.
Tanah Makmur (TMK MK)
16 July 2014
See important disclosures at the end of this report 11
Valuation FV of MYR1.74. Our FV for the stock is MYR1.74, pegged to 10x FY15F P/E. Our FV
presents an upside of 39% from its IPO price of MYR1.25. We derive our P/E target by using the 11.2x average FY15F P/E of its peers and applying a 10% discount to the average P/E. This is given Tanah Makmur’s smaller landbank size and market capitalisation.
Figure 15: Peer comparison
Source: RHB estimates, Bloomberg
Company Planted area
(ha)
Market capitalization
(MYRm)
FY13 FY14F FY15F
Far East Holdings 20,768 1,102.80 14.18 NA NA
Kim Loong Resources 14,350 942.00 12.63 12.98 10.86
Sarawak Plantation 31,266 774.40 18.10 9.41 7.18
United Malacca 21,661 1,500.70 21.7 20.49 15.47
Tanah Makmur 13,530 497.70 11.36 6.87 7.14
High 31,266 1,500.70 21.70 20.49 15.47
Average 22,011 1,079.98 16.65 14.29 11.17
Low 14,350 774.40 12.63 9.41 7.18
Price earnings
multiples (x)
Tanah Makmur (TMK MK)
16 July 2014
See important disclosures at the end of this report 12
Financial Exhibits
Profit & Loss (MYRm) Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F
Total turnover 282 208 243 303 319
Cost of sales (136) (103) (152) (180) (187)
Gross profit 146 104 92 123 132
Other operating costs (28) (17) (26) (32) (33)
Operating profit 118 87 66 91 98
Operating EBITDA 123 95 76 100 108
Depreciation of fixed assets (2) (4) (6) (6) (6)
Amortisation of intangible assets (3) (3) (4) (4) (4)
Operating EBIT 118 87 66 91 98
Interest expense (6) (4) (5) (6) (7)
Pre-tax profit 112 83 62 85 91
Taxation (27) (17) (17) (20) (22)
Minority interests (5) (3) (2) (2) (2)
Profit after tax & minorities 81 62 43 63 67
Reported net profit 81 62 43 63 67
Recurring net profit 81 62 43 63 67
Source: Company data, RHB estimates
Cash flow (MYRm) Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F
Operating profit 118 87 66 91 98
Depreciation & amortisation 5 7 9 9 10
Change in working capital (37) 20 (6) 4 (7)
Other operating cash flow 8 (3) 2 (0) (0)
Operating cash flow 95 112 71 104 101
Interest received (1) (0) (0) (0) (0)
Interest paid 6 4 3 6 7
Tax paid (29) (22) (16) (20) (22)
Cash flow from operations 71 94 57 89 86
Capex (26) (28) (14) (25) (25)
Other investing cash flow (7) (14) (11) (11) (11)
Cash flow from investing activities (33) (42) (25) (36) (36)
Dividends paid (17) (17) (26) (26) (26)
Proceeds from issue of shares 0 1 1 - -
Increase in debt (61) (18) (23) (23) (23)
Other financing cash flow 13 (1) 1 (2) (3)
Cash flow from financing activities (65) (36) (47) (51) (52)
Cash at beginning of period 61 69 47 37
Total cash generated (26) 15 (14) 2 (2)
Implied cash at end of period (26) 77 54 49 35
Source: Company data, RHB estimates
Tanah Makmur (TMK MK)
16 July 2014
See important disclosures at the end of this report 13
Financial Exhibits
Balance Sheet (MYRm) Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F
Total cash and equivalents 61 69 47 37 29
Inventories 3 11 13 15 15
Accounts receivable 38 29 33 41 44
Other current assets 79 79 85 113 146
Total current assets 182 187 177 206 234
Total investments 0 0 0 0 0
Tangible fixed assets 117 141 149 187 212
Intangible assets 41 40 40 40 40
Total other assets 87 99 108 128 158
Total non-current assets 246 280 297 355 410
Total assets 427 467 474 561 644
Short-term debt 23 29 12 19 22
Accounts payable 27 33 34 49 51
Other current liabilities 2 7 10 14 12
Total current liabilities 53 70 56 82 86
Total long-term debt 65 44 44 56 66
Other liabilities 37 33 34 34 34
Total non-current liabilities 102 76 78 90 100
Total liabilities 155 146 134 171 186
Share capital 170 173 173 173 173
Retained earnings reserve 91 130 146 196 265
Other reserves 4 4 5 5 5
Shareholders' equity 265 307 323 373 442
Minority interests 7 14 16 16 16
Other equity (0) (0) - - -
Total equity 272 321 340 390 458
Total liabilities & equity 427 467 474 561 644
Source: Company data, RHB estimates
Key Ratios (MYR) Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F
Revenue growth (%) 0.0 (26.5) 17.3 24.3 5.4
Operating profit growth (%) 0.0 (25.9) (24.1) 37.4 7.8
Net profit growth (%) 0.0 (22.5) (31.4) 46.4 7.3
EPS growth (%) (23.0) (66.9) (31.4) 46.4 7.3
Bv per share growth (%) 0.0 15.6 5.4 15.5 18.4
Operating margin (%) 41.8 42.1 27.2 30.1 30.8
Net profit margin (%) 28.5 30.1 17.6 20.7 21.1
Return on average assets (%) 0.0 14.0 9.1 12.1 11.2
Return on average equity (%) 0.0 21.8 13.6 18.0 16.5
Net debt to equity (%) 9.9 1.2 2.9 9.7 13.0
DPS 0.00 0.00 0.00 0.05 0.05
Recurrent cash flow per share 0.42 0.24 0.14 0.22 0.22
Source: Company data, RHB estimates
Tanah Makmur (TMK MK)
16 July 2014
See important disclosures at the end of this report 14
SWOT Analysis
Strong working relationship with LKPP, its major shareholder
Upstream planter with downstream capability
Property development to unlock land value
High dependency on foreign workers
Unexpected changes in weather
Fluctuations in commodity prices
Softening measures in the property sector
Landbank expansion will provide better growth over the medium term
Potential increase in GDV of its property development project
Mill capacity expansion to meet future growth in FFB
Average age of trees are not too young (~16 years)
Replanting programmes may result in lower output in the near term
Limited track record in the bauxite mining business
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Jan
-11
Jan
-12
Jan
-13
Jan
-14
Jan
-15
P/E (x) vs EPS growth
P/E (x) (lhs) EPS growth (rhs)
0%
5%
10%
15%
20%
25%
Jan
-11
Jan
-12
Jan
-13
Jan
-14
Jan
-15
P/BV (x) vs ROAE
P/B (x) (lhs) Return on average equity (rhs)
Source: Company data, RHB estimates Source: Company data, RHB estimates
Company Profile Tanah Makmur is primarily an oil plantation company (that also operates a palm oil mill) with property development as its secondary business. It recently ventured into the bauxite mining business when it was awarded the necessary licenses in April 2014.
Tanah Makmur (TMK MK)
16 July 2014
See important disclosures at the end of this report 15
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17
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