CEPAT (8982) - (richDad) - CEPAT: Worth at least RM1.20? - More than 30% upside

Tags



1. Main business = oil palm plantation. CepatWawasan Group Berhad (CEPAT) is mainly involved in oil palm plantation (including milling) and power plant. CEPAT owns 10,290 ha of plantation land in Sabah (8450 ha or 82% planted with oil palm). With 124,390 tonnes of FFB in FY2016 from the mature land of 7122 ha, CEPAT yield is 17.47 tonne per hectare. This is better than Sabah 17.10 tonne per hectare in 2016, indicating good agricultural practice by the Company.
For the biogas segment, CEPAT operates a 12 Megawatt Biomass power plant and a 3.8 Megawatt Biogas power plant, both in Sandakan, Sabah.
To fully understand what CEPAT does you can visit their website here
2. 65% of earnings from plantation. Plantation (including milling) total PBT is RM30.7m which means 65% of total profit. Power plant contributes RM11.5m or 24% of total profit. These two (in total) contribution is 89% of total profit.
3. Beneficiary of high CPO price, 9MFY17 already exceed FY16. 9MFY17 net profit of RM22.8m is already higher than FY16 net profit of RM21.1m. This is due to good CPO price of RM2804 per tonne in 9MFY17 (12% higher than 9MFY16). 
 
4. CPO price is trending up - to cross RM3000 soon.  Many experts from the news is talking about RM3100 per tonne soon. This means plantation counters should go up too. CEPAT will benefit from this as 65% of its earnings is from plantation. 
 
5. Will IOICORP buy CEPAT plantation estates?Here's why I think IOICORP may buy CEPAT plantation estate:
i) IOICORP will get RM3.9b soon and even after distributing RM0.8b as dividend, it will still have RM3.1b. Let say they target 10% to 20% of the remaining money to buy plantation estate, that is still a lot of money of RM300m to RM600m. What can you buy with these money? Actually it can buy the whole CEPAT as its market cap is below RM300m
ii) Synergy as CEPAT estate is in Sandakan, Sabah - IOICORP also in Sandakan. Some research house already said this..."Brownfield areas" located in Peninsular Malaysia and Sabah. CEPAT fits in as it is in Sabah
iii) CEPAT is undervalued - it is trading at huge 40% discount to Book Value of RM1.59. It is rare to get plantation companies at discount to Book Value.
6. Long term value is between RM1.20 to RM1.40
Base case scenario value = RM1.20
CEPAT PE of 12x is already at 25% discount to other Sabah and Sarawak based plantation companies PE of 15x and above.
I am looking at FY17 EPS of 9.6sen. FY18 should do better at 10.0 sen at least.
Value? = 12x PE * 10 sen EPS = RM1.20
Optmistic case if IOICORP buys CEPAT, value = RM1.40

Mature area = 7122 ha * RM60,000 per ha = RM427m
Immature area = 1328 ha * 10,000 per ha = RM13m
No of shares = 309m
Value per share = RM1.42 (round down to RM1.40)
For record keeping purpose, I am using last Friday closing price of RM0.885

http://klse.i3investor.com/blogs/richDad/137200.jsp