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Company Focus

Asiatic Development
Bloomberg: ASP MK | Reuters: ASIA.KL

Malaysia Equity Research PP 11272/04/2010(023521) 28 May 2009

FULLY VALUED RM5.55 KLCI : 1,047.68 Hurt by lower volume and OER
Price Target : 12-Month RM 5.00 (Prev RM 4.35)
Reason for Report : 1Q09 Results
At a Glance
Analyst
Malaysia Research Team • 1Q09 earnings were flat q-o-q at RM36.9m, below our
general@hwangdbsvickers.com.my and consensus expectations on annualized basis. Top
line was hurt by lower FFB yield and oil extraction
rate (OER)
Price Relative
RM Relative Index • FY09F-10F earnings are raised by 20% and 9% mainly
9.40 389
in anticipation of pick up in CPO prices
8.40
7.40
339
• Maintain Fully Valued, with DCF-based TP raised to
289
6.40 RM5.00 (WACC 11.7%; terminal growth rate 3.0%),
5.40 239
4.40
189
implying 14.5x CY10F EPS and 1.4x CY10F BV
3.40
139
2.40
1.40
2005 2006 2007 2008
89
2009
1Q09 FFB production fell 5% y-o-y to 248,218MT mainly
Asiatic Development (LHS) Relative KLCI INDEX (RHS)
due to higher rainfall in Sabah, which affected crop harvesting
and transportation. A 4% reduction in harvest area and lower
yields from older palm trees also contributed to lower FFB
Forecasts and Valuation
production. OER also edged down to below 20% from 20.3%
FY Dec (RM m) 2008A 2009F 2010F 2011F in 1Q08. Given bad the weather, Asiatic did not purchase
Turnover 1,036 859 996 1,007 outside FFB during the quarter. Instead, it was a net FFB seller.
EBITDA 503 357 371 375 This partly explains why cost of goods sold fell 42% y-o-y in
Pre-tax Profit 483 333 343 344 1Q09.
Net Profit 373 254 260 260
Net Pft (Pre Ex.) 373 254 260 260
EPS (sen) 49.3 33.5 34.4 34.4 Sold forward c.10,000MT CPO at average of RM2,600/MT
EPS Pre Ex. (sen) 49.3 33.5 34.4 34.4 for delivery in 2H09. The Group has now established an
EPS Gth Pre Ex (%) 8 (32) 3 0 internal forward sales policy of up to 30% of its CPO
Diluted EPS (sen) 49.3 33.5 34.4 34.4
Net DPS (sen) 11.1 7.5 7.7 7.7 production. We are positive on this development, as the Group
BV Per Share (sen) 310.0 333.5 360.2 386.9 managed to secure forward sales at higher than our FY09F
PE (X) 11.3 16.6 16.1 16.2 average CPO price. However, we do not expect significant
PE Pre Ex. (X) 11.3 16.6 16.1 16.2
impact on earnings because the contracted volume only
P/Cash Flow (X) 10.7 15.1 14.5 14.4
EV/EBITDA (X) 7.4 10.0 9.4 9.1 accounts for 4% of FY09F CPO production.
Net Div Yield (%) 2.0 1.4 1.4 1.4
P/Book Value (X) 1.8 1.7 1.5 1.4 Raised FY09F-10F earnings by 20% and 9%, respectively
Net Debt/Equity (X) CASH CASH CASH CASH
ROAE (%) 16.9 10.4 9.9 9.2 after upgrading our CPO price assumptions to RM2,300/MT
for both years. We also reduced our OER assumptions and
Earnings Rev (%): 20.1 8.5 0.5 FY09F FFB production growth (to 0.5% from 3.7%) given
Consensus EPS (sen): 33.1 39.5 44.8
the weaker-than-expected production in 1Q09.
ICB Industry : Consumer Goods
At A Glance
ICB Sector: Food Producers
Principal Business: ASP is a pure play having significant land bank in Issued Capital (m shrs) 757
Indonesia, which will provide long-term growth. Asiatic has strong Mkt. Cap (RMm/US$m) 4,202 / 1,194
balance sheet and is poised to offset the anticipated CPO price Major Shareholders
decline with increased production from 2010 onwards Genting Berhad (%) 55.0
EPF (%) 6.1
Lembaga Tabung Angkatan 5.4
Free Float (%) 33.5
Avg. Daily Vol.(‘000) 1,312

HWANGDBS
Refer to important disclosures at the end of this report
Company Focus
Asiatic Development

FY09F and FY10F CPO prices raised. We still expect palm oil consequently resulted in lower soybean stock/usage ratio, which
prices to moderate in 2H09 in line with seasonally higher raised our FY09F and FY10F soybean prices to US$9.00/bu and
production, but the drop may be lower than initially expected, US$8.90/bu, respectively. This prompted us to raise FY09F and
primarily due to lower than expected Argentine soybean FY10F CPO prices to RM2,300/MT from RM1,900 and RM2,000,
production. A cut in our forecast soybean production had respectively. Our revised projections are summarized below:

CPO price revisions


2008 2009F 2010F 2011F 2012F 2013F 2014F 2015F 2016F 2017F 2018F
CPO price assumptions (RM/MT,
FOB Malaysia) 2,864 2,300 2,300 2,330 2,270 2,280 2,280 2,270 2,260 2,260 2,280

CPO price assumptions


(US$/MT, CIF Rotterdam) 924 700 700 730 720 725 730 725 720 720 725

Prev. CPO prices (RM/MT, FOB) 2,864 1,900 2,000 2,200 2,170 2,120 2,100 2,090 2,080 2,100 2,130
Prev. CPO prices (US$/MT, CIF) 924 590 630 690 690 680 675 670 670 675 685
Source: DBS Vickers

Results Summary and Comments


FY Dec (RMm) 1Q09 1Q08 % chg 4Q08 % chg Comments
y-o-y q-o-q
Turnover 133.4 273.1 (51.2) 154.4 (13.6) Fell y-o-y due to 45% and 59% lower average CPO and PK
prices, respectively.
Cost of Goods Sold (68.9) (118.1) (41.7) (81.3) (15.3) Costs fell y-o-y and q-o-q likely due to the absence of
external FFB purchases in 1Q09.
Gross Profit 64.5 155.0 (58.4) 73.0 (11.7)
Other Op. (Exp)/Inc (17.2) (13.8) 24.6 (29.4) (41.2) Asiatic recognized c.RM5m additional expenses in 1Q09 for
its Indonesian operations and biotechnology division.
Operating Profit 47.3 141.2 (66.5) 43.7 8.2
Associates & JV Inc 0.5 2.0 (74.1) (0.4) (229.7)
Net Interest (Exp)/Inc 0.0 0.0 n.a. 0.0 n.a.
Exceptional Gain/(Loss) 0.0 0.0 n.a. 0.0 n.a.
Pre-tax Profit 47.8 143.2 (66.6) 43.3 10.4
Tax (10.9) (27.8) (60.8) (6.9) 58.6
Minority Interest (0.0) (1.2) (97.6) 0.5 (106.6)
Net Profit 36.9 114.2 (67.7) 36.9 (0.0)

Gross margin (%) 48.4 56.8 47.3


Operating margin (%) 35.4 51.7 28.3
Net margin (%) 27.6 41.8 23.9
Effective tax rate (%) 22.8 19.4 15.9
Segmental breakdown
Turnover
Plantation 115.9 249.5 (53.5) 138.2 (16.1)
Property 17.5 23.6 (25.8) 16.2 8.0 Fell y-o-y due to slow property demand. The Group also
deferred several new launches given the weak market.
Total 133.4 273.1 (51.2) 154.4 (13.6)

Pretax profit
Plantation 43.8 133.5 (67.2) 40.4 8.4
Property 1.8 3.9 (53.8) 0.1 1,700.0
Others 2.2 5.8 (62.1) 2.8 (21.4)
Total 47.8 143.2 (66.6) 43.3 10.4
Others
FFB production (MT) 248,218 259,950 (4.5) 366,250 (32.2)
CPO price (RM/MT) 1,862 3,403 (45.3) 1,633 14.0
PK price (RM/MT) 832 2,005 (58.5) 839 (0.8)
Source: Company, DBS Vickers

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HWANGDBS
Company Focus
Asiatic Development

Cash Flow & Balance Sheet Summary and Comments


FY Dec (RMm) 3Q08 4Q08 1Q09 FY09F FY10F FY11F Comments
PBT 138.8 43.3 47.8 333.0 342.9 343.6
Other non-cash items (0.0) 4.9 2.7 42.3 36.0 34.0
Depreciation and 5.5 6.0 6.3 27.3 31.5 34.3
amortization
Interest income (5.4) (4.9) (3.1) - - -
Share of results in associates 0.2 0.4 (0.5) (3.2) (3.2) (3.2)
Others (0.4) 3.4 0.1 18.2 7.6 2.8
Working capital changes (20.9) 1.0 (30.7) 57.6 (19.3) 0.4
Tax paid (28.8) (80.1) (32.3) (76.6) (79.7) (80.6)
Others - - (0.9) - - -
Cash flow from Operations 89.0 (30.9) (13.4) 356.3 279.9 297.3

CAPEX (30.5) (58.6) (23.2) (136.3) (138.9) (142.2)


Purchase of intangible assets (2.1) (20.3) - - - -
Other investments 5.4 1.0 (2.4) (0.4) (6.5) (6.6)
Cash Flow from Investing (27.2) (77.9) (25.6) (136.7) (145.4) (148.8)

Net change in borrowings 6.1 12.2 5.5 - - - Total borrowings increased to RM27.7m in
1Q09 from RM20.2m in 4Q08. But Asiatic
remains in a net cash position with RM499.3m
net cash.
Dividends paid (26.6) (33.0) - (73.2) (57.7) (58.6)
Others 0.5 2.3 (0.0) 0.3 4.9 1.2
Cash Flow from Financing (20.0) (18.4) 5.5 (72.9) (52.8) (57.4)
Net change in cash 41.8 (127.2) (33.5) 146.6 81.7 91.2
Source: Company, DBS Vickers

Asiatic: Historical FFB production

Y-o-y change (LHS) FFB production (RHS) MT


30% 140,000

20% 120,000

100,000
10%
80,000
0%
60,000
-10%
40,000
-20% 20,000

-30% 0
Mar-06

Jun-06

Sep-06

Dec-06

Mar-07

Jun-07

Sep-07

Dec-07

Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

Source: Company, DBS Vickers

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HWANGDBS
Company Focus
Asiatic Development

Income Statement (RM m) Balance Sheet (RM m)


FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F

Turnover 1,036 859 996 1,007 Net Fixed Assets 437 485 508 520
Cost of Goods Sold (474) (456) (578) (590) Invts in Associates & JVs 14 18 21 24
Gross Profit 562 403 417 416 Other LT Assets 1,239 1,298 1,389 1,491
Other Opng (Exp)/Inc (82) (73) (78) (76) Cash & ST Invts 532 679 761 852
Operating Profit 480 330 340 340 Inventory 140 124 157 159
Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 145 107 124 124
Associates & JV Inc 3 3 3 3 Other Current Assets 55 52 49 47
Net Interest (Exp)/Inc 0 0 0 0 Total Assets 2,563 2,763 3,008 3,218
Exceptional Gain/(Loss) 0 0 0 0
Pre-tax Profit 483 333 343 344 ST Debt 19 19 19 19
Tax (106) (77) (80) (81) Other Current Liab 108 128 163 167
Minority Interest (4) (3) (3) (3) LT Debt 1 1 1 1
Preference Dividend 0 0 0 0 Other LT Liabilities 55 55 60 61
Net Profit 373 254 260 260 Shareholder’s Equity 2,347 2,524 2,727 2,928
Net Profit before Except. 373 254 260 260 Minority Interests 33 35 38 41
EBITDA 503 357 371 375 Total Cap. & Liab. 2,563 2,763 3,008 3,218
Sales Gth (%) 14.3 (17.1) 15.9 1.1 Non-Cash Wkg. Capital 231 155 167 164
EBITDA Gth (%) 7.5 (29.0) 4.0 0.9 Net Cash/(Debt) 512 659 741 832
Opg Profit Gth (%) 7.3 (31.3) 3.0 0.2
Net Profit Gth (%) 8.5 (32.0) 2.7 (0.1)
Effective Tax Rate (%) 21.9 23.0 23.2 23.5
Cash Flow Statement (RM m) Rates & Ratio
FY Dec 2008A 2009F 2010F 2011F FY Dec 2008A 2009F 2010F 2011F

Pre-Tax Profit 483 333 343 344 Gross Margins (%) 54.3 46.9 41.9 41.4
Dep. & Amort. 23 27 32 34 Opg Profit Margin (%) 46.3 38.4 34.1 33.8
Tax Paid (106) (77) (80) (81) Net Profit Margin (%) 36.0 29.5 26.2 25.8
Assoc. & JV Inc/(loss) (3) (3) (3) (3) ROAE (%) 16.9 10.4 9.9 9.2
Chg in Wkg.Cap. (66) 58 (19) 0 ROA (%) 15.4 9.5 9.0 8.4
Other Operating CF 65 18 8 3 ROCE (%) 16.3 10.0 9.5 8.8
Net Operating CF 397 356 280 297 Div Payout Ratio (%) 22.5 22.5 22.5 22.5
Capital Exp.(net) (184) (136) (139) (142) Net Interest Cover (x) NM NM NM NM
Other Invts.(net) (99) 0 0 0 Asset Turnover (x) 0.4 0.3 0.3 0.3
Invts in Assoc. & JV (1) 0 0 0 Debtors Turn (avg days) 45.8 53.6 42.3 44.9
Div from Assoc & JV 0 0 0 0 Creditors Turn (avg days) 90.4 90.2 82.0 91.5
Other Investing CF (97) 0 (6) (7) Inventory Turn (avg days) 105.1 112.4 93.8 103.8
Net Investing CF (382) (137) (145) (149) Current Ratio (x) 6.9 6.6 6.0 6.4
Div Paid (93) (73) (58) (59) Quick Ratio (x) 5.3 5.4 4.9 5.3
Chg in Gross Debt 1 0 0 0 Net Debt/Equity (X) CASH CASH CASH CASH
Capital Issues 1 0 0 0 Net Debt/Equity ex MI (X) (0.2) (0.3) (0.3) (0.3)
Other Financing CF 14 0 5 1 Capex to Debt (%) 909.0 673.6 686.3 702.3
Net Financing CF (77) (73) (53) (57) Z-Score (X) 14.7 12.7 12.0 11.3
Net Cashflow (62) 147 82 91 N. Cash/(Debt)PS (sen) 67.7 87.0 97.8 109.9
Opg CFPS (sen) 61.1 39.5 39.5 39.2
Free CFPS (sen) 28.1 29.1 18.6 20.5
Quarterly / Interim Income Statement (RM m) Segmental Breakdown
FY Dec 2Q2008 3Q2008 4Q2008 1Q2009 FY Dec 2008A 2009F 2010F 2011F

Turnover 322 287 154 133 Revenues (RM m)


Cost of Goods Sold (149) (126) (81) (69) Plantation 937 779 916 927
Gross Profit 173 161 73 65 Property 100 80 80 80
Other Oper. (Exp)/Inc (17) (22) (29) (17) Total 1,036 859 996 1,007
Operating Profit 156 139 44 47
Other Non Opg (Exp)/Inc 0 0 0 0 Op Profit* (RM m)
Associates & JV Inc 1 0 0 1 Plantation 458 300 305 302
Net Interest (Exp)/Inc 0 0 0 0 Property 12 9 9 9
Exceptional Gain/(Loss) 0 0 0 0 Others (10) 0 0 0
Pre-tax Profit 158 139 43 48 Total 461 309 313 311
Tax (41) (30) (7) (11)
Minority Interest (2) (2) 0 0 Op Margins* (%)
Net Profit 115 107 37 37 Plantation 48.9 38.6 33.3 32.6
Net profit bef Except. 115 107 37 37 Property 12.5 11.0 11.1 11.2
Total 44.5 36.0 31.5 30.9
Sales Gth (%) 17.9 (11.0) (46.1) (13.6) *excluding interest income
Opg Profit Gth (%) 10.7 (11.0) (68.6) 8.2
Net Profit Gth (%) 0.8 (6.9) (65.6) 0.0
Gross Margins (%) 53.9 56.2 47.3 48.4
Opg Profit Margins (%) 48.5 48.5 28.3 35.4
Net Profit Margins (%) 35.7 37.4 23.9 27.6
Source: Company, DBS Vickers

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Company Focus
Asiatic Development

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