Stocks With Likelihood Of Corporate Exercise: Far East Holdings

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Far East Holdings Bhd
UNLIKE many of its far bigger peers, Far East Holdings is a small, low profile — but very cash rich — oil palm plantation company trading at relatively low valuations with a decent dividend yield.

Despite the volatility in CPO prices over the years, Far East has managed to maintain stable EBITDA margins of about 21% to 23% from 2010 to 2013. Despite a slump in palm oil prices this year, the company managed to achieve higher net margins of 19.3% in 1H2014 compared to 11.9% in 1H2013.

The company has a planted land bank measuring 20,768 ha in Pahang, of which 16,927 ha are matured. It is majority owned by the Pahang state government, with its biggest shareholder being Lembaga Kemajuan Perusahaan Pertanian Negeri Pahang (LKPP) with a 25.2% stake.

Far East is currently trading below at 1.05 times book, with a trailing 12-month P/E of 12 times — considerably lower than its bigger peers.

The price-to-book discount could widen further as the company is expected to undertake an asset revaluation exercise in 2015. Notably, the company has net cash of RM229 million, which has been growing steadily over the last four years.  This is equivalent to RM 1.62 per share, or 20% of the current share price. As a result, the company pays decent dividends, with the latest yield being 3.1%.

Growth drivers for the company include a young tree profile and a recently announced joint venture to develop 1,416 ha of plantation land in Pahang. Only 28% of its trees are old palms, 31% are prime palms, while a significant 41% are young and immature palms.

Unfortunately, the stock is very illiquid and it remains to be seen if the company may consider boosting liquidity by undertaking corporate exercises.

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This article first appeared in The Edge Financial Daily, on October 30, 2014.