To
cushion against the volatility of CPO prices, some plantation companies
have diversified into the more stable milling business.
One such company is Kim Loong.
The Johor-based company trades at a relatively undemanding P/E of 13.3 times and 1.6 times book (16 Oct 2015).
It has net cash of RM248.1 million or 79.7 sen per share, which
translates to 28.4% of its RM874.6 million valuation (16 Oct 2015).
Because of its stable milling business, Kim Loong is able to consistently pay dividends.
Since FY2011, its payout ratio has
ranged from 50-70% of net profits. The company paid a special dividend
of 10 sen per share in August 2015, bringing total dividends to 23 sen
in the past 12 months.
Kim
Loong owns 14,901ha of planted oil palm land in Johor, Sabah and
Sarawak. 91.1% of its trees are mature
and should provide stable fresh fruit bunch (FFB) output moving
forward. Its three mills processed 1.2 million tonnes of FFB in
FY-Jan2015 — 3.9 times what the company’s estates produced. The mills
also boast an above-average oil extraction rate of 22.4%.
For
1HFY2016, Kim Loong’s profit before tax (PBT) from its upstream
activities slumped 41.7% y-o-y to RM24.4
million on the back of lower FFB prices. However, PBT from milling was
steady at RM27.1 million compared to RM27.3 million in the previous
year.
This highlights the defensive nature of Kim Loong’s business model. In addition, it should also benefit if
the rally in CPO prices (Sept – Oct 2015) is sustainable.
Moving
forward, Kim Loong plans to develop 2,067ha of land into oil palm
plantation in Sarawak pending approval
from the state. Construction of a fourth mill should be completed by
2017, which will boost its milling capacity by 300,000 tonnes a year.
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