This article first appeared in Capital, The Edge Malaysia Weekly on December 20, 2021 - December 26, 2021

Agribusiness NEUTRAL

CGS-CIMB RESEARCH (DEC 12): Malaysia’s palm oil stocks fell 1% month-on-month (m-o-m) to 1.82 million tonnes in November due to lower output and higher exports. The stock level was 6% above our 1.72 million tonnes forecast. It was also 2% above Bloomberg consensus forecast of 1.78 million tonnes and 3% above Reuters poll estimate of 1.77 million tonnes. The higher inventory was due to lower-than-expected exports and higher-than-expected imports. However, the stock level is tight as it is 20% lower than the historical 10-year average November stock level of 2.28 tonnes.

We project palm oil stocks to fall by 7.1% m-o-m to 1.69 million tonnes as at end-December, with output falling 5% m-o-m and exports rising 2% m-o-m. We project crude palm oil (CPO) prices to remain firm at RM4,000 to RM5,000 per tonne in December, amid tight near-term global edible oil and palm oil inventories.

We maintain our CPO price forecast of RM4,270 for FY21, RM3,600 for FY22 and RM3,240 for FY23. We are of the view that CPO prices could remain high until 1Q2022, before trending lower when palm oil supply recovers and crushing activities of oilseeds improve. The strong CPO price and expectations of a gradual return of foreign workers are positives. However, these are offset by concerns over rising fertiliser costs in 2022. Thus, we reiterate our “neutral” rating for the sector. Our key picks in Malaysia are Kuala Lumpur Kepong (KLK), Genting Plantations and Hap Seng Plantations.

We favour KLK as its current valuation of 23 times 2022F PER is below its historical PER of 26 times. The other attraction of KLK is potential earnings accretion from the acquisition of IJM Plantations Bhd.

We like Genting Plantations for its rich land bank and young estates. The group has one of the youngest estates age profiles among its big-cap peers in Malaysia.

Our “add” rating on Hap Seng Plantations is premised on the view that the current implied low EV/ha (enterprise value per hectare) of RM37,000/ha for its RSPO-certified contiguous estates in Sabah could attract suitors, leading to a share price re-rating in the medium term. Hap Seng Plantations offers a healthy dividend yield of 5.7% for FY21F, supported by its net cash position of RM308 million (38 sen/share).

Target price: RM1.48 BUY

MAYBANK INVESTMENT BANK RESEARCH (DEC 12): On Dec 9, TSH Resources entered into a heads of agreement with PT Kawasan Industri Kalimantan Indonesia and PT Kalimantan Industrial Park Indonesia for the proposed disposal by its 90%-owned unit of Hak Guna Usaha-certified land measuring 13,215ha in North Kalimantan for IDR2.309 trillion (RM679 million) cash and yet to be certified land for IDR174.76 million per ha (RM51,379 per ha).

While details remain sketchy at this juncture, we are positive on TSH’s plan to dispose of its only North Kalimantan land. If TSH successfully completes this disposal, its pro forma net gearing will dip below 15% (from 54% as at end-September), allowing TSH the freedom to focus on its remaining unplanted land bank to drive future growth.

TSH has agreed to negotiate exclusively with the buyer for two months and endeavours to execute a sale and purchase agreement (SPA) during this period. We make no changes to our EPS and target price pending the signing of an SPA. Maintain “buy” and a target price of RM1.48 on 20 times FY22 earnings.

Target price: RM1.08 BUY

UOB KAY HIAN RESEARCH (DEC 10): Astro Malaysia’s 3QFY1/22 core earnings declined 37% year-on-year and 5% quarter-on-quarter to RM96 million due to lower revenue as a result of the lockdown and higher content costs (36% of revenue versus the usual 30% to 32% on spillover from 2Q airing of sporting events). While 9MFY1/22 earnings were 69% of our full-year estimate, we deem results within expectations as we expect earnings to catch up in 4Q. The latter would be partially offset by the one-off Cukai Makmur. Management said only one entity under the group would be affected, hence the overall effective tax rate could be moderately above the statutory tax rate.

Reiterate “buy” on share price weakness with an unchanged DCF-based target price of RM1.08 or 10 times FY1/23 PE. We like management’s concerted effort to forge content partnerships and roll out new initiatives, which could allow them to defend its shrinking market share and ARPU over time. Management remains committed to a 75% dividend payout policy for FY22, backed by sufficient cash flow buffer. Astro could re-rate on dividend yield of 8% to 9% for FY1/22-24.

Target price: RM1.71 BUY

RHB RESEARCH (DEC 14): Results were broadly in line with expectations. We expect a robust 2HFY4/22 Patami — driven by the Sales and Service Tax (SST) exemption, which has been extended to June 2022 — but lower the FY23 sales volume assumption to factor in the delayed soft demand period post SST resumption in FY23.

Despite that, we are keeping our FY22F Malaysia sales volume of 12,140 units for Mazda as we believe this remains achievable. However, our projected volumes for FY23 have been lowered to 12,770 units from 13,370 previously. Consequently, our target price is lowered to RM1.71 (from RM1.77), pegged to 12 times PER. We have incorporated an environmental, social and governance (ESG) premium of 2% on the intrinsic value. We upgrade Bermaz Auto, our top sector pick, to “buy” from “neutral”. Our target price implies 14% upside with 5% yield.

We continue to like its niche asset light business model, and non-volume products should steer the company comparatively better in a challenging CY22 outlook. Our channel checks suggest that the waiting list for Mazda vehicles is around 1.5 months, with inventory low at 600 units. Positively, the chip shortages issue remains limited to certain CBU models — there are sufficient chips on hand to continue CKD production up to June 2022.

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