Best year in the making for Kulim

Kulim (M) Bhd
(Oct 19, RM3.39)

Maintain buy at RM3.38 with fair value of RM4.45: Management is now guiding for Papua New Guinea (PNG) production to come in at 1.650 million tonnes of fresh fruit bunches (FFB) for 2011, compared with 1.42 million tonnes three months ago. Combined with guided output from the Solomon Islands of 130,000 tonnes, New Britain Palm Oil should produce 1.78 million tonnes for 2011. This is close to our forecast of 1.79 million tonnes.

The group’s Malaysian estates should produce 659,000 tonnes of FFB this year, which should boost total production to 2.43 million tonnes.

New Britain Palm Oil has land reserves of 31,000ha. It is targeting new planting on 1,000ha in West New Britain and 2,500ha in Ramu on PNG’s main island for this year. The company is also targeting to replant on 500ha in West New Britain and 1,500ha on its Kula estate.

Previously lacking infrastructure that has now been put into place, the Kula estate on PNG’s main island is now being audited for the purpose of obtaining RSPO certification.

Acquisition of the first land parcel measuring 6,000ha from Johor Corp will be completed in December 2011 or January 2012. The acquisition of the second parcel measuring 7,000ha will only be completed in mid-2012.

We maintain our earnings forecast at RM501.3 million for FY11 and our “buy” on Kulim, the cheapest large-scale plantation company in Malaysia. — OSK Research, Oct 19