PETALING JAYA: Mercury Securities Research (Mercury Research) likes MKH Oil Palm (East Kalimantan) Bhd (MKHOP) for its plantation acreage’s age profile and superior fresh fruit bunch (FFB) yield, which makes the company a compelling investment play should crude palm oil (CPO) prices remain high.
The research house noted that despite achieving better average selling prices (ASP), the margins for MKHOP had been on a downtrend since financial year 2021 (FY21) mainly due to the spike in fertiliser and labour costs.
“We see FY24 as a key turning point for the company, as a combination of favourable CPO prices and lower production costs should help to significantly boost MKHOP’s earnings before interest and tax margin recovery to 22% to 24% in FY24 to FY25,” it stated in a report on the company.
Mercury Research added based on market forecast, MKHOP will achieve a stable CPO ASP for Indonesian domestic prices of RM3,500 or RM3,400 per tonne in FY24-FY25, versus RM3,350 per tonne realised in FY23.
“For sensitivity analysis, we estimate for every RM100 per tonne increase in our CPO price assumptions, MKHOP’s FY24-FY25 earnings will rise by 3%, respectively,” it said.
Additionally, the research house said 95% of MKHOP’s plantation area comprises prime mature oil palms while the remaining 5% is of young mature oil palms.
The reseach house has a “subscribe” call on MKHOP with a fair value of 80 sen a share based on 14 times earnings per share forecast for the financial year ending Dec 31, 2024, translating to a 29% upside to the initial public offering (IPO) price of 62 sen a share.
The palm oil company is hoping to generate RM136.4mil through its IPO before it makes its debut on the Main Market of Bursa Malaysia on April 30.
