KUALA LUMPUR (April 15): TA Securities has valued Main Market-bound MKH Oil Palm (East Kalimantan) Bhd (MKHOP) at 62 sen, based on CY2024 price-earnings ratio (PER) of 16x, which is 2x multiples lower than its sector target PER of 18x, after taking into consideration MKHOP’s smaller market capitalisation.
In a note on Monday, the research house, which does not have a rating on the stock, said MKHOP is too dependent on certain major customers, which accounted for 88.2% of its total revenue for FY2020, 95.9% for FY2021 and 99.9% for FY2022.
It said that in FY2023, the group only transacted with four customers, and sales to said customers made up 100% of its total revenue.
“Thus, the group’s business will be affected if there are significant reductions in purchases from these major customers,” it said.
TA Securities said the upstream business is highly sensitive to weather conditions, as it is one of the factors that affect fresh fruit bunch (FFB) production in both the near and long term.
The research house pointed out that drought season will decrease FFB yield while extremely wet conditions will affect the application of fertilizer, thus lowering fruit quality and impacting oil extraction rate.
“MKHOP’s earnings are highly sensitive to fluctuations in CPO and FFB prices.
“A sustained depressed CPO price will adversely affect the bottom line.
“Note that CPO is closely correlated with soybean and crude oil prices. This would indirectly expose CPO to other factors such as extreme weather in US, Brazil, and Argentina as well as geopolitical tension and Opec’s decisions on crude oil production,” it said.
TA Securities said it expects the group to register a net profit growth of 29.8% to RM39.5 million for FY2024 and 1.9% to RM40.2 million for FY2025.
“The higher earnings would be driven by higher CPO prices, FFB production, and lower production costs,” it said.