CIMB Research initiates coverage of Oriental Holdings, TP RM9.10 (4006)

KUALA LUMPUR: CIMB Equities Research has initiated coverage of Oriental Holdings with an Outperform recommendation.

It said on Tuesday the target price of RM9.10 was based on 20% discount to its RNAV of RM11.40 per share.

"The re-rating of the plantation business and the market share expansion of Honda cars and motorcycles in the Malaysian auto sector are share price catalysts," it said.

CIMB Research said the timely diversification and early investment in Indonesian plantations have planted strong cash generative pillars for Oriental, a former blue chip holding that owned the Honda franchise in Malaysia in the 1990s.

"With RM3.80 net cash per share and another RM3.30 in landbank and real estate assets, investors are effectively getting its plantations and auto earnings for free," it said.

CIMB Research said the auto earnings were expected to recover beyond pre-2011 levels while the plantation business would continue to be the foundation of earnings, at 33% of net profits.

"Investors can take comfort in Oriental's relatively predictable earnings stream where 60% of profits come from plantations and investment income. This will increase further over the long term as the group expands its planted area and diversifies into healthcare," it said.

The research house said Oriental, armed with a cash hoard of RM2.9bil which was estimated to increase to RM3.7bil by FY14, Oriental had started M&A activity and was likely to step up on it. The focus was expected to be on plantations.

"Potential restructuring to streamline common businesses between privately-held assets and assets held in Oriental would also be positive. Risks to our view involve the start-up losses from its investment into healthcare via a 1,000-acre medical tourism project in Melaka, though we draw comfort from the enlarged group's experience and track record in the industry," said CIMB Research.