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Wednesday, February 23, 2011

Tradewinds (RM7.89; Target RM13.50) 4Q2010 results preview: Still strong (A food giant conglomerate yet one of the cheapest stock in KLSE)

Results of Padiberas Nasional Bhd (Bernas) and Tradewinds Plantation Bhd (TWSP) were out. Both of these counters are 72.6% and 69.8% held by Tradewinds (M) Bhd (TWS) respectively. Given Bernas net profit of RM36.9 mil and TWSP's net profit of RM83.5 mil, combined profit contribution to TWS' net profit based on its equity stake in both companies should be around RM85 mil already. Note that we have only incorporated its plantation and rice business segments.

It has another sugar business division. Assuming that its sugar refining net profit is around RM35mil (Historically it's about RM35mil to RM40mil per quarter), total net profit for TWS is estimated to reach around RM110mil to RM120mil or EPS (Earnings per share) of 37 sen-40 sen. Total net profit for the whole year could reach RM400mil or EPS of RM1.35. Based on current price of RM7.80, PER 2010 is less than 6x.

Pricing the stock at PER of 10x, it should be trading at RM13.50. This is one of the cheapest stocks in KLSE in view of its food conglomerate business which is able to rake in profits in the tune of few hundred million. Not many stocks can have this kind of profits. We could compare TWS to Kulim as this stock also bears some similarities to Kulim, another conglomerate with oil palm plantations and food businesses. Look at what levels Kulim is trading now. TWS profits are even more stable and higher compared to Kulim's albeit with a higher net gearing. Perhaps TWS should follow Kulim's footsteps in announcing some share split or bonus issues which could see greater liquidity and participation from the investors, then the stock is poised for an upward re-rating.

In addition, it is rather generous with its dividends. It just paid out 20 sen dividend in Jan 2011 and probably will pay another 10-15 sen (Just a guess) for its final dividend in mid year, a 4% yield based on current price. Not bad at all. Results should be out soon within one week. Let's see how it performs for the final quarter.

For previous post, refer here.

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