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Corporate: Taking a closer look at Glenealy

Glenealy Plantations (M) Bhd is one of the many plantation companies listed on Bursa Malaysia that is not covered by the investment research community. But it hasn’t been missed by investors hoping to cash in on the rise in crude palm oil (CPO) prices since late June. Glenealy, which has oil palm estates in Sabah and Sarawak, saw its share price touch an intra-day high of RM5.95 on Oct 15. Trading of the illiquid stock also spiked on Oct 13. This was very much in line with the trading patterns of many of its peers, such as TSH Resources Bhd, Sarawak Oil Palms Bhd, IJM Plantations Bhd and Tradewinds Plantation Bhd, which saw their share prices hit 52-week highs on Oct 26. The CPO third-month contract nearly hit a two-year high of RM3,086 per tonne on Oct 28. Based on Glenealy’s earnings per share of 26.08 sen for FY2010 ended June 30, it is trading at a historical PER of 19.9 times, lower than that of close competitor IJM Plantations, which is trading at a historical PER of 25 times. Like Glenealy, IJM Plantations operates in Sabah and has been developing new estates in Indonesia. Glenealy has a planted area of 27,523ha in Sabah and Sarawak, where up to 74% is planted with mature palms. According to its 2010 annual report, the company also has two subsidiaries in East Kalimantan, with about 10,000ha of plantable landbank with location permit status in Kabupaten Bulungan. It is still growing its Indonesian landbank, having acquired 70% stakes in two companies early this year, which come with 11,358ha of land with Hak Guna Usaha status (the principle title that applies to agricultural areas granted by the government). The two transactions are still pending completion. IJM Plantations has a total planted area of 25,222ha in Sabah and another 5,306ha in Indonesia. Its palm trees in Indonesia are immature, but mature palms make up 93.5% of its Sabah planted acreage. Its Indonesian estates are located in East Kalimantan and Sumatra. With higher acreage planted with mature trees, IJM Plantations produced 604,663 tonnes of fresh fruit bunches (FFB) in FY2010 ended March 31, against Glenealy’s 316,667 tonnes. IJM Plantations’ yield per mature hectare stood at 25.6 tonnes compared with Glenealy’s 15.63 tonnes, which has been weighed down by low yields from the Sarawak estates. Glenealy’s Sabah estates yielded 21.6 tonnes of fruit per hectare compared with 10.87 tonnes from the Sarawak estates. Sarawak is known to have lower FFB yields due to the younger estates there. The state’s average FFB yield for 2009 was 15.29 tonnes per hectare, against Sabah’s and the national average of 21.15 tonnes and 19.2 tonnes respectively. In terms of oil mill efficiency, Glenealy recorded a higher oil extraction rate of 22.81% for FY2010, while IJM Plantations registered 21.6%. In FY2010, Glenealy achieved an average CPO price of RM2,365 per tonne, 4.8% higher than the year before. With higher CPO prices in recent weeks and rising mature hectarage, its performance in 1HFY2011 should see y-o-y improvement.  Although the two counters share some similarities, interest in the stocks diverge with most of the spotlight on IJM Plantations, which is covered by 11 research houses. Of course, it also benefits from having a highly visible parent in the form of IJM Corp Bhd, which owns a 55.14% stake. Glenealy also has a well-known but less visible parent, Lingui Developments Bhd, which has a direct shareholding of 36.42%. Samling Strategic Corp Sdn Bhd holds a direct and indirect stake of 51.77% in Glenealy.   Lingui is a Sarawak-based timber company, which is 67.23%-owned by the Samling group of companies. One of the companies, Samling Global Ltd is listed in Hong Kong. Samling Global made the news in August when it was reported that the Norwegian Government Pension Fund had decided to divest its shareholding in the company purportedly for the timber group’s unethical practices in its logging operations. Glenealy’s managing director, Yaw Chee Ming, is also MD of Lingui and CEO of Samling Global. Meanwhile, Glenealy’s share price has risen 20.9% this year, almost in tandem with the KL Plantation Index and the FBM KLCI’s rise of 18.3% and 19.2% respectively. It has, however, outperformed the big guns, like IOI Corp Bhd and Genting Plantations Bhd, both of which rose about 6% YTD. It also beat IJM Plantations’ 12.9% YTD performance. Glenealy usually suffers from a lack of interest and poor trading liquidity. Daily trades were usually less than 500,000 shares in the last one year. A broker says that even if a stock’s valuation looks cheap, investors are often turned off by illiquid counters. This is to avoid being stuck holding the stock when there are no buyers. Furthermore, there are other more liquid and larger cap plantation counters for investors to dip into during this CPO rally. Given Glenealy’s poor liquidity and perceived undervaluation, there has been speculation that it could be a candidate for privatisation. However, sceptics ask why the Samling group would want do so now, when the share price has risen. With the uptrend in Glenealy’s share price this year, even if there had been plans to privatise the company, it is much less attractive now for the major shareholders. This article appeared in Corporate page, The Edge Malaysia, Issue 830, Nov 1-7, 2010

ECA Integrated, Maybank, TNB, IOI Properties, Batu Kawan, KLK, Allianz Malaysia, Genting Plantations, Sports Toto, KPJ, MPI, Matrix Concepts, Hap Seng Plantations, Farm Fresh, IJM, Omesti and MNHB

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Affin Bank, Sime Darby Property, FGV, Serba Dinamik, Telekom Malaysia, Tropicana, Pos Malaysia, Axiata, Velesto, UEM Sunrise, MBM Resources, Bumi Armada, Chin Hin, Genting Plantations, Mega First, Hap Seng Plantations, Hibiscus, Supermax, Hong Leong Indus

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