Sunday, 20 July 2008
Kencana Agri Limited
Kencana Agri Limited ("Kencana") is a crude palm oil producer in Indonesia. Its integrated plantation operations comprise plantations, palm oil mills, bulking facilities and logistic services and renewable biomass power plant. Its revenue for FY07 was US$69.3m and its net profit was US$39.2 million.
There seemed to be much growth potential ahead as it has a huge land bank and that 50% of its palm plantation are still not matured (< 3 years) yet. The shares will be offered at $0.305 per shre and the total no. of shares post IPO will be 998m. The market cap will be US$223.3 million.
It is "amazing" that CIMB being one of the placement agent for 49.75m shares, downgraded the sector and several palm oil stocks like Wilmar, Indoagri and Golden Agri when Kencana's IPO was launched. I am wondering how CIMB placees will feel when they receive the Kencana shares!! "Why do you place out the shares to me when you downgrade the sector ah and the palm oil stocks ah?!"...
Assuming the EPS grow by 25% for FY2008 (which i think is still possible), the net profit for FY2008 will be US$49 million. EPS will be US$49m/998m = US 4.9 cents or Singapore 6.6 cents. At the IPO price of 30.5 cents, the IPO is priced at a forward PE of 4.6x.
Based on the information from Shareinvestor and as of 20 July 2008, Golden Agri is priced at 4.1x historical, IndoAgri 17x, Wilmar 29x, First Resource 19x. (Sorry... I am too lazy to look for the forward PE figures).
Valuation wise, i think Kencana is priced attractively relative to its peers and with potential for growth in the next few years given its relative younger plantation and underutilized land. However, with all the bearish sentiments affecting palm oil stocks, it will take a big effort to sustain the price above its IPO for the short term. The actual IPO price of 30.5 cents was way below its original indicative pricing between 35 to 40 cents when DBS first launched its book building exercise in June. However, over the longer term, it may prove to be an attractive acquisition target for the other bigger plantation firms if it continues to trade at such cheap valuation.
For short term investors, i will avoid this IPO but may consider it if it falls to ridiculously low levels. My gut feel is that Wilmar (being one of its major customer), is likely to take a stake in the company via placement tranche. However, i am not sure if its competitors like IndoAgri, Golden Agri, First Resources will be invited to the party. It will certainly make this IPO more interesting if the rivals are allowed to take a stake in it.