KULIM: Neutral, target price RM7.92

MIDF Research maintained its 'neutral' call on Kulim Bhd's (2003) stock but raised its target price to RM7.92 from RM7.28 after the plantation firm announced plans to sell its oleochemicals business for RM450 million.

"By disposing NatOleo (Natural Oleochemicals Sdn Bhd), it allows Kulim to focus more attention on its better margin, stable and more profitable businesses of oil palm plantation operations and quick service restaurants under QSR Bhd," it said in a report yesterday.

The research house expects Kulim to record an accounting gain of about RM168.3 million from the sale.

NatOleo recently experienced a turnaround in its business in the first quarter of 2010. The sale may result in Kulim foregoing earnings prospects of about RM20 million to RM30 million a year, said MIDF.
It raised its earnings forecast for Kulim by 48.9 per cent for this financial year and cut it by 10.1 per cent for next year to take into account the one-off accounting gain, foregone earnings and incremental interest income from the disposal of NatOleo to the Wilmar group.

It expects Kulim's price-earnings ratio (PER) to be re-rated upwards in line with other mid-sized plantation groups which are trading at around early teens. Kulim has a historical mean PER of 8 times.