Glenealy a hidden gem It’s also a cheap entry to ownership of plantation land

PETALING JAYA: Glenealy Plantations (Malaya) Bhd is a hidden gem among listed plantation companies.

Besides strong earnings growth, it has a high percentage of young mature trees, some 78,500ha of undeveloped land and a net cash of RM170mil, or RM1.47 per share, as at end-March.

It owns about 22,160ha of planted areas in Sabah and Sarawak. About 32.5% of the trees are five to 10 years old while 54.8% are over 10 years old.

The rest, less than three years old, would ensure excellent growth in fresh fruit bunches going forward. Oil extraction rate in the financial year ended June 30, 2007 (FY07) was commendable at 23.1%.

While the price of plantation land is soaring, Glenealy has about 15,000ha in East Kalimantan and 65,600ha in Sarawak, including those in the sub-licensing agreement with Samling Global Ltd, which are yet to be developed.

The Hong Kong-listed Samling is the parent of Lingui Developments Bhd, which in turn, owns 36.4% of Glenealy.

Glenealy is a cheap entry to buying plantation land as the indicative price per planted hectare is about RM28,000, based on market capitalisation of RM623mil and planted areas of 22,160ha.

The current market price is about RM50,000 per hectare. Additionally, investors would get some 79,000ha of unplanted areas for free.

In the first nine months of FY08, the company's core earnings per share was 46.57 sen. The third-quarter earnings could have been better if not for some delays in the delivery of crude palm oil (CPO).

Assuming a conservative 20 sen for the final quarter, total earnings per share for FY08 could be 66.6 sen, giving a price/earnings ratio of 8.2 times only.

The implementation of windfall tax, relative to cess, lessens the burden for planters in east Malaysia.

Based on a CPO price of RM3,500 a tonne, Glenealy will pay RM112.50 a tonne in windfall taxes compared with RM200 per tonne under the cess system.

This translates to a potential earnings enhancement of about 6%, derived from the replacement of cess with windfall tax.

Glenealy paid its first-ever interim dividend in 10 years in FY08. The quantum of 10 sen was the same as FY07's final dividend.

Assuming a final dividend of 20 sen for FY08, this would bring total dividends to 30 sen, or a yield of 5.6%.

Next year, the company would be celebrating its jubilee anniversary. With total reserves of RM346.8mil, it could easily reward shareholders with a 2-for-1 bonus issue and higher dividends given the windfall gains.

The start of bio-organic fertiliser operations and carbon credit claims would soon add to its bottom line.

CPO prices are expected to remain high based on current record corn and soybean prices due to floods in the Midwest, the United States.

The CPO price realised for third quarter of FY08 was RM3,321 a tonne, which was close to the market's average of RM3,500 per tonne.

With such ability to sell CPO near the spot level, Glenealy is likely to see more earnings going forward.

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