Thursday 28 Mar 2024
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KENANGA Research has maintained a hold recommendation with an unchanged target price of RM1.70 for Sarawak Plantation Berhad as the group is still growing.

“The group has about 2,561ha old mature palm which will be replanted over the next two years. Replanting cost is about RM8,000/ha. Meanwhile, group is also planning to develop a total of about 10,000ha land within next year,” it said, adding that Sarawak Plantation’s total landbank as of Dec 31, 2008 is 52,071ha with 18,406ha of vacant land.

The vacant landbank includes 10,786ha managed under the Native Customary Rights where the group holds a 60% stake while landowners and the Sarawak state government own the remaining 30% and 10% stakes respectively.

Kenanga noted that the group continued to scout for new landbank in Sarawak. “Using discounted cash flow that is the main valuation method for mature plantation land, indicative green field price in Sarawak is RM4,000-RM5,000/ha while land planted with young palm could cost slightly higher.”

The group’s cheapest option to raise fund is through term loan, said Kenanga. “Banks are willing to lend to plantation firms though the loan amount is lesser now. The group still has term loan facilities up to RM75 million which is yet to be utilised.”

For FY09 and FY10, it projected capital expenditure of RM100 million a year.

Kenanga also noted that although Sarawak Plantation mainly sells crude palm oil (CPO) on spot, its forward policy allows forward selling of 70%-85% for next three months production.

It estimated that Sarawak Plantations would realise CPO price of about RM2,400/tonne in 2Q09, in line with the average CPO trading price of RM2,454/tonne for the corresponding period.

“Current CPO production cost is about RM1,300/tonne (including depreciation, mill and estate costs and other administration costs). 2008 production cost was high at RM1,500 due to higher fertiliser costs, windfall tax and cess payment,”it said.

Kenanga expected the company to pay a dividend of seven sen for FY09, translating into a yield of 3.5%.

Sarawak Plantation closed unchanged at RM1.97 yesterday.


This article appeared in The Edge Financial Daily, July 17, 2009.

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