Asian Pay Television Trust ,
BUY (Initiating Coverage), S$0.91
Slower growth, but oversold
Price Target : 12-Month S$ 0.97
•2Q13 earnings of US$37.7m were below our US$45-50m estimates due to lower refining profit; 1.25Sct interim DPS declared
•Own FFB output growth guidance cut to 0-5% from 5-10%; new planting target of 15-20k ha unlikely to be met due to labour shortage
•FY13F-15F earnings revised by +2%/-5%/-3% on lower yields, biodiesel volume, export taxes; DCF-based TP tweaked to S$2.15 (WACC 15.4%, TG 3%)
•BUY call reiterated on 21% upside; share price has more than priced in weaker performance
2Q13 earnings below. FR’s 2Q13 earnings of US$37.7m (-26% y-o-y; -41% q-o-q) were adversely impacted by 77% q-o-q drop in refining EBITDA, as sales volume dropped 30% q-o-q; while G&A expanded and ASP eased 7% q-o-q. Group CPO sales volume of 124k MT was also slightly lower than output of 127k MT. We understand FR’s prime-aged trees are in a downcycle, following two consecutive years of yield expansion. Hence, without contribution from Lynhurst and c.14k ha of additional mature hectarage, FR would have posted a drop in output, consistent with peers’ YTD.
Lower guidance. Accounting for the down-cycle, FR has now lowered own FFB output growth guidance to 0-5% from 5-10% previously. The group would also fall short of its 15-20k ha expansion target this year, as aggressive expansion in recent years have made recruitment more difficult. More compound fertiliser has been applied to reduce fertilising rounds. The group exported c.40% of its CPO volume in 1H13.
FY13F-15F earnings revised by +2%/-5%/-3%, as we now impute 60k MT of biodiesel production in 2H13 (inherently having much higher refining margin) vs. zero before. We have also cut own and smallholders FFB yields and reduced internal FFB output by 5%, translating to 2H13 output share at 58% of full year estimate.
BUY call reiterated for 21% upside to our revised TP. At the current price, we believe the counter has more than priced in lower output. FR has remained shielded from weak CPO prices given its forward sales. While we expect less forward sales in 2H13, we understand the group still has contracts at higher prices.
Publish date: 14/08/13