Friday, November 18, 2011

Tradewinds Plantation Bhd (RM3.72; TP: RM6.24): Highlights

I just read the headlines this morning from TheEdge featuring TWSP and its results are just breathtaking. RM99mil for a quarter at net margins of 43%!!! Very seldom have I seen this kind of margins. Profits gonna be above RM300mil annually from now on. This should catch the attention of analysts and investors, right? Not so sure about Malaysian analysts though :( Some details on TWSP:

  • Net profit (3Q2011/9M2011/Estimated 2011): RM98.8mil/RM237.5mil/RM330mil
  • Earnings growth 3Q2011(qoq/yoy): 9.7%/96.4%
  • Earnings growth 9M2011: 130.4% yoy
  • PER 2011: 5.96x
  • PBV: 1.01x
  • Dividend Yield: About 3%
  • Net gearing: 0.33x (Decreasing every quarter from 0.58x in 1Q2010)

Palm oil plantation details:
  • FFB production growth (3Q qoq/9M yoy): 15.7%/15.8%
  • Mature plantations: 70,166ha
  • Immature plantations: 20,940ha
  • Under development: 10,909ha
  • Reserves: 24,491ha
  • Expansion plans: 24,491ha in 4 years

Conclusion: A definite buy. PER 2011 only at 5.96x. PBV at 1x. Net gearing not excessive at 0.33x. Expected to be in net cash position within 2 years. Compare this with TSH’s PER 2011 of 11.9x, PBV of 1.64 and net gearing of 0.67x, TWSP is definitely superior!! But but but….TSH is flying to the sky…

TWSP is a giant plantation company in the making with profits of more than RM300mil. Just look at how many oil and gas counters with profits above this amount and the higher risks involved such as high gearing, dependence on projects handout, execution risks of projects etc; And they are trading way way up and above the level these plantation companies are trading at. I just think plantation companies deserve better. 

Going forward, production growth will come from their immature plantations of 20,940ha, 10,909ha that is under development coupled with 6,000ha p.a. plantation expansion over the next 4 years.

Fair value: PER 2011 of 10x will give a fair value of RM6.24 per share. I think PER of 10x is appropriate in view of its size of plantation (about 140,000ha inclusive of rubber plantation and other land) coupled with strong earnings and production growth. Proxy for exposure to TWSP would be TWS, another buy list which I’ve highlighted in my previous posts. Having said that, TWSP would be a better bet for now owing to its lower price (thus higher liquidity) and full exposure to the plantation sector (Favorable prices now and good growth prospects), but TWS would be more stable owing to its diversified businesses in rice and sugar in addition to higher dividend yield. It depends on your risk appetite in the end.

I can't help but to compare IJMP, TH plantations and TSH with TWSP, SOP and TDM. If TWSP, SOP and TDM are to trade close to the valuations of IJMP, TH or TSH, their share prices have to double up. 

Market Data
Share price: RM3.72
Shares issued: 529.15mil
Market Cap: RM1.97bil


  1. Dear David,

    Your recent postings are incredible. I have been in investment banking for more than two decades and your analysis ranks with the best. Your line of reasoning and writing are first class.

    Keep up the great work.


  2. Thanks Ian :) I still have much to learn. Appreciate your feedback and maybe constructive advices from you in the future. Haha.