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Monday, November 14, 2011

TDM Bhd (RM2.96; TP: RM4.40): Grossly undervalued. A forgotten or ignored counter?


I've written about this company before and I will write it again now, so please bear with me for my cheong hei-ness (in Canto.) :P

After looking through some of the plantation counters, TDM Bhd stood out again as a very promising stock to go into. Despite its huge increase in profits over the past year with 1H2011 profits increasing by 90% year-on-year, its stock price didn’t really move much, still staying at about RM3.00 (Resilient as well as it dropped only about 10% in Oct 2011 before rebounding back close to RM3). Its balance sheet remains solid with a strong net cash position of RM155 million. This probably explains why it could pay generous dividends with dividend yield of approx. 6%, among the highest in the whole plantation sector.

In addition to that, it remains one of the more aggressive planters. It currently has matured plantation of 33,284ha and additional plantation landbank of 40,000ha in Kalimantan, Indonesia, of which 3,000ha has been planted. TDM plans to develop 20,000ha of oil palm plantation within the next 3 years, which is considered more aggressive as compared to other plantation counters (In the words of TDM's CEO in its 2010 annual report, TDM's Indonesian plantation is expanding very fast). TDM is at a very favorable position as it not only has an existing landbank to develop, but it also has the financial resources to do just that in view of its huge available cash pile. Recall how IOI wanted to buy Dutaland landbank at a massive price tag of more than RM69,700/ha. TDM plantations are currently valued at less than RM22,000/ha which is less than a third of what IOI wanted to pay for Dutaland landbank (Market Cap of RM700mil divide by its matured hectarage of 32K ha). If we include TDM's healthcare division plus its 40,000ha of plantation landbank in Kalimantan into the equation, its matured plantations are valued even lesser.

1H2011 net profit was already at RM61mil as compared to just RM32mil in 1H2010. Total net profit for 2011 is expected to be RM130mil. Production of FFB is also increasing in the double digits. For the first 9 months of 2011, production already rose about 15% year-on-year.

So, here you go. A company paying 6% dividend, PER 2011 at 5.4x, PBV at 0.9x, double digit production growth, an existing plantation landbank of 40K ha and net cash of RM155million which already smoothened the way for aggressive organic growth (no more troublesome and expensive search for funding and landbanks) in addition to expansion plans of 20,000ha plantation within 3 years which are already taking place. For myself, this is one stock that I must add to my portfolio.

For a comparison between EPIC and TDM of which both are controlled by Terengganu Incorporated S/B, EPIC was valued at PER of 10x with net profit of only RM60-70mil with growth prospects much lesser than TDM’s. Therefore, I see no reason why TDM shouldn’t be trading close to EPIC’s valuation or even higher since TDM is in many ways superior to EPIC. Thus, what’s the upside? If TDM is valued at PER of 8x (About the average for smaller planters), its fair value should be at RM4.40/share, an upside of almost 50%. If it’s valued at PER of 10x, its fair value should be at RM5.50/share, an upside of more than 80%.


Details:
Share Price: RM2.96
Shares Issued: 236.562 mil
Market Cap: RM700mil
Net Profit for 2010 and 2011: RM93.6mil and RM130mil
PER 2011: 5.4x
PBV: 0.9x
Dividend Yield: 6%
Net Cash: RM155mil
Expansion Plans: 20,000ha in 3 years

4 comments:

  1. David,
    I agree fully what has been written by you about TDM. It doesn't matter what method one uses to value TDM, it is worth the value of RM4.40 you mentioned about. However, sorry to disappoint you (and me also), the market does not look at it our way. Investors (punters?) only look at one thing; the seemingly plausible story written by analysts. Look at TSH. How it flies after Phillip Capital, the edge magazine, Maybank Investment Bank etc,it flies; and surprisingly keep on flying. Comparing TSH and TDM, TDM is a gem and to me, TSH is a piece of shit (look at its shitty cash flows and balance sheet, and its higher PE). But I am wrong about its share price obviously.

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  2. Every dog will have its day. Every stock will have its play. Stay with TDM and you will be well paid.

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  3. Ben/David, your stock got its day already! Congrat

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  4. Thanks KC. Didn't know it performed earlier than expected :) Thanks to the investors who are buying in this stock :)

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