Several years ago, I made some big bucks with TSH (陈顺风资源，9059) and its warrant, when they ventured into palm oil business. By that time, it was still well-known as a cocoa products manufacturer then classified in the Industrial sector in KLSE.
TSH's earnings improved significantly when its palm oil business started to bring in revenue, and hence pushed up its stock price as well as its warrant price. Later, it was reclassified under the Plantation sector, and the rest is history.
Now, Metro Kajang (METROK 美景控股, 6114) well-known as a property developer in Klang Valley has also ventured into palm oil business since December 2007 by acquiring 15,942.60 hectares of land in East Kalimantan to plant oil palm. It might take them 3 years until 2011 before the palm oil business begins to contribute to its revenue, and now the time has already gone halfway of the milestone.
East Kalimantan in Indonesia is a strategic location for oil palm plantation as it is expected to have better yield per hectare, lower labour cost, etc. In fact, several public listed plantation companies in KLSE also expanded their plantation business to Indonesia over the past few years.
The 15,942.60 hectares land bank of Metro Kajang is considered small, compared with other public listed plantation companies, such as:
- ASIATIC (2291) - 80,000 hectares
- CEPAT (8982) - 10,300 hectares
- IJMPLNT (2216) - 29,797 hectares
- IOICORP (1961) - 169,450 hectares
- KLK (2445) - 210,000 hectares
- KULIM (2003) - 82,730 hectares
- TSH (9059) - 20,000 hectares
- SIME (4197) - 531,300 hectares
however, it is a good size to start with, and probably will be expanded in the future.
It is worth to note that although plantation is considered a new business to Metro Kajang, it is not new to their executive chairman Dato' Chen Kooi Chiew who already has 18 years of experience in that sector.
Unlike TSH (which once troubled by their cocoa business), the core business of Metro Kajang i.e. property development and management remains strong and dynamic. This business has never fail them since commencing over twenty years ago, as they have uninterrupted profit track record from day one. Therefore, the new plantation business is not expected to override their property business like TSH, but would be another good revenue generator beside the property business.
Beside that, Metro Kajang has other kinds of businesses, which contribute not as significant as their property business. That include furniture manufacturing (in China), money lending, lifestock farming and food processing.
In the short term, their lifestock farming and food processing business is seen to be affected by the current swine flu incident. This might cause some effect on their stock price performance, which might provide some good opportunity for continue accumulation. In the long term, we have seen Metro Kajang has been aggressive in buying more land banks for their property development, and the plantation business should start to bring in revenue from next year (2010) onwards. The importance of this new plantation business can be sensed from the cover page of their 2008 Annual Report.
Despite its low share price at RM0.90 only, Metro Kajang has an NAB per share of RM2.73, net cash per share of RM0.20, cash flow per share of RM0.34, and debt/equity ratio at 0.31 only. These mean that they are financially strong. With the prospected EPS of 16 sen for the coming year, the estimated PE ratio stands at 5.62 by today's closing.
Disclaimer: This article is intended for sharing of point of view only. It is not an advice or recommendation to buy or sell any of the mentioned stock counters. You should do your own homework before trading in Bursa Malaysia.
