RSawit- an attractive fast-emerging plantation stock

Background

Rimbunan Sawit Berhad (RSB) group is engaged in cultivation of oil palm (based in Sarawak), which are carried out via its subsidiaries such as R.H. Plantation Sdn Bhd ('RHP'), Timrest Sdn Bhd ('TR'), Baram Trading Sdn Bhd ('BT') and Nescaya Palma Sdn Bhd ('NP'). For details of their respective planted area & output, see Table 1 below.


Table 1: RSawit's current plantation estates & hectarage

Recent Acquisition

RSawit has recently completed the acquisition of 2 companies, each with a sizable vacant land earmarked for oil palm cultivation located in Batang Baram. The acquisitions are:

1) 100%-stake in Lumiera which owns a piece of vacant land measuring 6071 ha for RM31.0 million; and
2) 85%-stake in Woodijaya which owns a piece of vacant land measuring 5000 ha for RM27.6 million.

The financial commitment for future plantation development of these 2 piece of land amount to RM113 million (i.e. RM53 million for the Lumiera estate & RM60 million for the Woodijaya estate). For more details on these completed acquisitions, go here.

On Dec 30 last year, RSawit announced another large acquisition- acquiring equity interests in nine plantation companies and the commercial rights to a plantation estate from several vendors (some of which are related to RSawit's shareholders) for RM286.1mil to be satisfied via the issuance of 28.33 million new shares and 191.75 million new irredeemable convertible preference shares (ICPS) shares at a price of RM1.30 per share/ICPS share. The total hectarage of the estate land managed by these companies is about 21680 ha. For details of the pricing & hectarage of the new estates to be acquired, see Table 2 below. For further details of the proposed acquisition, go here.


Table 2: Latest Acquisition- pricing & hectarage

When the latest acquisition, RSawit will own or control a total planted hectarage is about 42254 ha, plus vacant land measuring 11071 ha that is slated for future plantation development.

Recent Financial Results

RSawit has just announced its results for QE30/11/2009, where its net profit increased by 189% q-o-q or 198% y-o-y to RM9.0 million while turnover increased by 16.7% q-o-q or 11.6% y-o-y to RM48 million. The improved financial performance is due mainly to better prices for CPO & Palm Kernel. A closer look at Table 3 below shows that RSawit could be returning to the level of profitability it has achieved before the sharp plunge in the prices of CPO in 2008.


Table 3: RSawit's 8 latest quarterly results


Chart 1: RSawit's latest 8 quarterly results

Valuation

RSawit (closed at RM1.48 yesterday) is now trading at a PER of 5.3 times (based on annualized EPS of 28 sen). At that multiple, RSawit is considered attractively priced.

Technical Outlook

From the weekly chart, it seems that RSawit is trapped within a rising trading band, with support at RM1.30-33 & resistance at RM1.52-55. A break above the resistance could signal the next upleg for this stock.


Chart 2: RSawit's weekly chart as at Jan 27, 2010 (Source: Quickcharts)

Conclusion

Based on a recovery in its financial performance, attractive valuation & positive technical outlook, RSawit could be a good stock for long term investment. However, in the current uncertain market condition, you can choose to wait for better prices to appear.