This post is written by Koon Yew Yin.
27th Dec 2012
On 24th Dec the controlling shareholder of Tradewinds and Tradewinds PLatation, Tan Sri Syed Mokhtar made an offer to buy all the remaining shares in Tradewinds and Tradewinds Plantation that he does not own for Rm 9.30 and Rm 4.03 per share respectively. Since the offer price of TWSP at Rm 4.03 is 26 cents below its last closing price before the announcement, many shareholders were disappointed and dumped their holdings. They may like to know my opinion on this issue as follow:
1. The controlling shareholders already in control of about 70%, is not interested to privatise TWSP because he wants to maintain its listed status and/or probably he has difficulty in raising so much of additional borrowing to buy up all the TWSP shares.
2. TWSP has a larger land area planted with oil palms and rubber than Genting Plantation yet its market cap is about one third of Genting Plantation. Moreover, all TWSP’s assets is within Malaysia unlike Genting Plantation with a significant part outside Malaysia. On average, land in Malaysia is worth more than the land in Indonesia.
UOB KH published an analyst report on TWSP on 19th March 2012. These are some of the points extracted from the report:
FFB production to grow at 3-year CAGR of 13.4%. Fresh fruit bunch (FFB)production is expected to grow 12-15% in 2012-14, higher than industry growth of 5-8%. The strong production growth will be supported by: a) 11% pa increase in mature area for the next four years, b) 20% of young areas to provide strong double-digit growth, and c) yield improvement in its prime areas (49% of planted areas).
Hidden gem. Despite its large landbank, Tradewinds Plant is trading at only 2013F PE of 7x and EV/ha of US$14,551, vs regional peers’ 12x and US$17,049 respectively.
Tradewinds Plant is a pure Malaysian play. Given the scarcity of land in Malaysia, its landbank would be valuable. At the current plantation land market price, Tradewinds Plant’ RNAV would be RM19.58, significantly higher than its current share price of RM4.80.
We initiate coverage with BUY and a target price of RM7.20 based on 11x 2013F PE, which is slightly lower than the 13x PE for an average mid-sized plantation company due to its higher gearing compared with peers who are in a net cash or low gearing position. We are expecting an EPS of 57.1 sen, 65.7 sen and 61.9 sen for 2012F to 2014F respectively.
I am obliged to tell you that TWSP forms a major part of my investment portfolio and I am not asking you to buy this share.
Koon Yew Yin