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IPO Note, 16 July 2014

Tanah Makmur (TMK MK) Not Rated Agriculture - Plantation Target Price: NA

Market Cap: MYR497.7m IPO Price: MYR1.25

Growing Into Prosperity

Macro

2.00

Risks

2.00

Growth

2.00

Value

2.00

Avg Turnover (MYR/USD) na

Cons. Upside (%) na

52-wk Price low/high (MYR) na

Free float (%) 33.9

Share outstanding (m) IPO expected on 17 July with an offering of 101,590,000 shares (representing 25.51% of its enlarged issued and paid up capital)

Shareholders (%)

LKPP 20.0

Tengku Abdullah Ibni Sultan Hj Ahmad Shah

13.7

TAS Industries 12.5

Shariah compliant

Hoe Lee Leng +603 9207 7605

[email protected]

Malaysia Research +603 9207 7688

[email protected]

Forecasts and Valuations Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F

Total turnover (MYRm) 282 208 243 303 319

Reported net profit (MYRm) 80.6 62.5 42.9 62.8 67.4

Recurring net profit (MYRm) 80.6 62.5 42.9 62.8 67.4

Recurring net profit growth (%) 0.0 (22.5) (31.4) 46.4 7.3

Recurring EPS (MYR) 0.47 0.16 0.11 0.16 0.17

DPS (MYR) 0.00 0.00 0.00 0.05 0.05

Return on average equity (%) 0.0 21.8 13.6 18.0 16.5

Net debt to equity (%) 9.9 1.2 2.9 9.7 13.0

Our vs consensus EPS (adjusted) (%) (2.8) (2.6)

Source: Company data, RHB estimates

Tanah Makmur, a Pahang-based palm oil player with exposure to property development and bauxite mining, will be listed on the Main Market on 17 July. Earnings growth prospects are driven by the company’s well-planned expansion strategy for the next few years. This is expected to spur earnings from all its business segments. We estimate the value of the stock at MYR1.74, based on 10x FY15F P/E.

Key investment highlights. Tanah Makmur is a palm oil company

based in Pahang with a planted acreage of 17,969ha. We project for the company to post an approximately 24% earnings compound annual growth rate (CAGR) over the next two years. This will be underpinned by the capacity expansion of its oil mill, improving fresh fruit bunches (FFB) yield, future property launches and a new stream of income from its bauxite mining business. Investors should expect a decent dividend yield of 4.1%, since management intends to adopt a dividend policy of paying out a minimum of 30% of net profit.

Royal links. Tanah Makmur has close ties to Pahang’s royal family as

well as the State Government. The crown prince of Pahang and his family, via TAS Industries SB, have the largest stake in the company (26.2% in total). The state’s Lembaga Kemajuan Perusahaan Pertanian Negeri Pahang (LKPP) agency holds the second largest stake (20.0%). The company’s strong relationship with these parties has allowed it to enjoy continuous support from the State Government, particularly with regards to land matters.

MYR1.74 FV, with a potential 39% upside. We value Tanah Makmur at

MYR1.74, which is based on 10x FY15F P/E. We derive the target P/E by applying a 10% discount to the 11.2x average multiple of its peers. This is due to the company’s smaller landbank and lower market capitalisation when compared to peers such as Far East Holdings (FEH MK, NR), Kim Loong Resources (KIML MK, NR), Sarawak Plantation (SPLB MK, NR) and United Malacca (UMR MK, NR).

Risks: Reliance on foreign workers; Tanah Makmur’s plantation

business is labour intensive. The company relies heavily on foreign labour, primarily Indonesian workers. Any shortage of workers may affect the operations at the company’s plantation estates. Unfavourable weather conditions; Insufficient rainfall or, conversely, excessive

downpour that can cause flooding can adversely affect the quantity of FFB harvested and lower yields. Other risks include the outbreak of

diseases or damage to its oil palm trees at its plantations could also disrupt production.

Commodity price fluctuations. As is with commodities, CPO and PK

prices are also influenced by cyclical factors and are prone to market volatility. Observations based on the MPOB’s published figures show that annual average CPO prices have risen as high as MYR3,219/tonne in 2011 and dropped to as low as MYR1,394/tonne in 2005

http://www.efa.biz/

Tanah Makmur (TMK MK)

16 July 2014

See important disclosures at the end of this report 2

IPO Details Main Market listing. Tanah Makmur is set to list on the Main Market of Bursa

Malaysia on 17 July with an offering of 101,590,000 shares. This represents 25.51% of its enlarged issued and paid up capital. Based on the IPO price of MYR1.25/share, the company’s total market capitalisation will be MYR497.7m. Tanah Makmur expects to raise about MYR65.18m from the public issue. Of the proceeds, 43.73% will be utilised to fund its new estate development. This includes new field developments at Ladang Ulu Lepar and Ladang Alur Seri, and the replanting activities at its plantations at Ladang Charuk Puting, Ladang Sungai Sering and Ladang Empang Jaleh. All of the company’s plantation acreage is in Pahang. Of the remaining balance of the proceeds, 20.06% has been earmarked for the repayment of bank borrowings, 19.95% for infrastructure works at its KotaSAS township, 8.59% for listing expenses and 7.67% for the expansion of its palm oil mill in Pekan, Pahang. The plant’s current annual capacity is 187,200 tonnes per annum.

Figure 1: Utilisation of proceeds

Details of utilisation of proceeds Amount of total proceeds

raised (MYR)

Percentage of total

proceeds raised

Estate development 28,500,000 44%

Palm oil mill expansion 5,000,000 8%

Infrastructure works at the KotaSAS Township 13,000,000 20%

Repayment of bank borrowings 13,075,000 20%

Listing expenses 5,600,000 9%

Total gross proceeds 65,175,000 100%

Source: Company prospectus

Company Background Introduction. Tanah Makmur was primarily an oil palm plantation company before it

expanded to include palm oil milling, property development and the ancillary business of mining for bauxite. The company is currently operating in Pahang only. All its oil palm plantation estates and its township development – KotaSAS – are located in Pahang. Historically, all of its plantation business was held by Kurnia Setia Bhd, a company that was previously listed by LKPP on the Malaysia Stock Exchange on 1 Dec 1984. In 2009, Tanah Makmur offered to acquire the entire business and undertakings – including all assets and liabilities – of Kurnia Setia, which resulted in the privatisation of the latter. This exercise was completed in 2010 and Kurnia Setia was officially delisted on 21 Dec of that year. Figure 2: Tanah Makmur’s plantation estates and palm oil mill



16 July 2014


Plantation business. Tanah Makmur currently operates 13 plantation estates in

Pahang with an aggregate plantation land acreage of 17,969ha. Of this, 65% is self-owned and the remaining 35% is leased from LKPP, a Pahang State Government body that holds a 20% stake in the company. In FY13, Tanah Makmur’s estates produced about 232,605 tonnes of FFB. These were sold to the company’s own palm oil mill (49.2% of the total produced, which were supplied by seven of its estates), third-party traders and other millers. Tanah Makmur believes that by having its own mill, higher oil extraction rate (OER) is achievable due to better control of the milling process. Easy access to the mill and its strategic location helps ensure timely delivery of the FFB, which, in turn, allows for quick processing post harvesting. Tanah Makmur ventured into downstream activities with the production of CPO, palm kernel (PK) and compost fertiliser in July 2012.

Property development. Tanah Makmur ventured into the property development

business in 2008. This was undertaken in order to maximise the potential value of its land via the commencement of its maiden township development called KotaSAS in Kuantan, Pahang. The project is being developed on part of the company’s Ladang Bukit Goh estate and measures approximately 1,500 acres. KotaSAS’ development is slated to span over the next 15 years. Ancillary to this business, Tanah Makmur has also commenced mining bauxite after obtaining the necessary licenses. This business came about when it discovered bauxite deposits while clearing land for its property development initiative. The mining will be undertaken for a 3-year period, subject to renewal of the necessary licenses.

Figure 3: Tanah Makmur’s group structure

Tanah Makmur

Plantation

Kurnia Setia100%

Alur Cemerlang

100%

SJ Palm Oil Mill

100%

Alur Lestari

70%

Alur Gemilang

60%

Alur Seri

60%

Property development

KotaSAS

100%

Kurnia Setia Engineering

100%

Kreatif Selaras Land

100%

Kurnia Setia Trading

100%

Kreatif Sinar Gabungan

65%

KotaSAS OMNI

65%

Kreatif Selaras Mining

60%

Tanah Makmur KotaSAS

60%


Figure 4: Tanah Makmur's board of directors

Name Age Designation

Tengku Tan Sri Mariam bt Sultan Ahmad Shah 59 Non-independent non-executive director

Tengku Dato' Zubir bin Tengku Dato' Ubaidillah 52 Managing director

Tengku Dato' Ahmad Faisal bin Tengku Ibrahim 48 Non-independent non-executive director

Dato' Wan Bakri bin Wan Ismail 60 Non-independent non-executive director

Tan Sri Dato' Sri Abdul Aziz bin Abdul Rahman 68 Independent non-executive director

Dato' Cheong Keap Tai 66 Independent non-executive director

Dato' Dr Zaha Rina bt Zahari 53 Independent non-executive director

Dato' Thavalingam A/L C Thavarajah 49 Independent non-executive director

Darawati Hussain bt Dato' Seri Abdul Latiff 45 Independent non-executive director

Tengku Dato' Uzir bin Tengku Dato' Ubaidillah 55 Alternate director



16 July 2014


Figure 5: Tanah Makmur’s key management

Name Age Designation

Tengku Dato' Zubir bin Tengku Dato' Ubaidillah 52 Managing director

Teh Foo Hock 49 Chief financial oficer

Suzilah bt Haji Wahid 53 Company secretary

Abdul Razak bin Md Yusof 56 General manager (finance and accounts)

Alias bt Awang 52 General manager (plantation)

Azlan Shah bin Hj Mohd Yusoh 40 Senior project manager

Tumaran bin Wongso 54 Head of human resources and administration

Ashraf bin Abbas 51 Head of corporate development

Mohd Farizan bin Md Dalimi 34 Head of KotaSAS (technical)

Tengku Amir Nasser Ibin Tengku Ibrahim 28 Head of KotaSAS (administration and finance)

Hishamuddin bin Mohd Yunus 36 Head of palm oil mill operations

Mohamed Azmaili bin Ismail 57 Head of internal audit


Key management personnel

Tengku Dato’ Zubir bin Tengku Dato’ Ubaidillah. Tengku Dato’ Zubir had 19 years

of experience in various companies prior to joining Kurnia Setia in 2005 as its general manager of corporate development. He was promoted to general manager a year later. Subsequent to the privatisation of Kurnia Setia, he was transferred to Tanah Makmur where he assumed his current position as MD.

Teh Foo Hock. Prior to his recent appointment as Tanah Makmur’s CFO, Teh was

attached to PricewaterhouseCoopers (PwC) in 1985-1997, where he held various positions. He joined public-listed Kinsteel (KSB MK, NR) in 1997 where he held the position of group accountant (and later head of treasury) before he left in April 2014.

Business Overview Tanah Makmur’s planted areas stand at 13,529ha, of which 11,729ha is mature and the rest of 1,800ha is immature as at 15 May. There are another 3,093ha that can be planted up going forward. The company’s plantation estates are observed to have produced a higher FFB yield/ha when compared to the Malaysian Palm Oil Board (MPOB) industry average for the entire state of Pahang, West Malaysia and Malaysia as a whole (see Figure 7). Tanah Makmur was able to achieve an average of 20.43m tonnes/ha in FY13, ie in line with its 15-year average. This was due to its adoption of good practices in the process of cultivating, harvesting, manuring and weeding.

Figure 6: Tanah Makmur’s oil palm age profile



16 July 2014


Figure 7: Tanah Makmur’s FFB yield comparison

2011 2012 2013

Tanah Makmur

FFB Production (tonnes) 240,184 229,890 232,605

Matured plantation (ha) 10,107 10,416 11,388

FFB yield per ha (tonnes/ha)

Tanah Makmur 23.76 22.07 20.43

Pahang 18.97 18.94 20.21

West Malaysia 19.24 19.05 19.26

Malaysia (inc Sabah & Sarawak) 19.69 18.89 19.02

For the year ended 31 December


CPO mill set up in 2012. Tanah Makmur set up a CPO mill in July 2012, which has

a 30 tonne/hour capacity. The capacity of this mill could be expanded to 75 tonnes/hour. Having such capabilities has allowed the company to better manage its oil yield and improve profits. It achieved an average OER of 19.98% in 2013, in line with the national average. The CPO mill is currently running at an estimated average utilisation rate of 85%.

Figure 8: CPO and PK extraction rates

For the July- Dec 2012 period For year ended Dec 2013

Intake of FFB (tonnes)

From own estates 58,019.67 77,965.25

From third party 11,801.28 80,567.76

Total 69,820.95 158,533.01

Output of CPO and PK (tonnes)

Production of CPO 14,243.39 31,676.18

Production of PK 3,564.25 9,465.26

Average OER (%)

Tanah Makmur 20.58 19.98

Pahang 20.32 20.02

Malaysia 20.34 20.25

Average PK recovery rate (%)

Tanah Makmur 5.14 5.97

Pahang 5.26 5.44

Malaysia 5.05 5.12


Township development. The KotaSAS township started with a joint-venture (JV)

agreement signed between KotaSAS and OMNI Holdings SB, a property development company based in Kuantan. The JV sought to develop and construct a township in Bukit Goh, with the project focused on developing residential, commercial, institutional and government properties. KotaSAS was designed to come equipped with necessary township facilities like schools, recreational parks and lakes. The take-up rate for the properties within the development has been good, with a total of 1,045 residential units sold out of the 1,074 launched since Jan 2010.


16 July 2014


Figure 9: Types of properties developed and sold at KotaSAS

Name and development Type of property No of units

developed

No of

units

sold

Year/month of sales launch % of

units

sold

Precinct 1 (44.70 acres)

Sinaran Single storey semi-detached (SSSD) 54 54 Jan 2010 100%

Embun Double storey semi-detached (DSSD) 24 24 Jan 2010 100%

Bayu DSSD 74 74 Jan 2010 100%

Senja Double storey link (DSL) 34 34 Jan 2010 100%

Suria 1 DSL 132 132 Jan 2010 100%

Suria 2 DSL 7 7 Jan 2010 100%

Total 325 325 100%


Fajar 1 Single storey link (SSL) 87 87 April 2011 100%

Fajar 2 SSL 94 92 June 2011 98%

Bintang Single storey super-link 36 36 June 2011 100%

Cahaya SSL 70 70 June 2011 & April 2012 100%

Pancaran SSSD 16 16 June 2011 & April 2012 100%

Senja 2 DSL 16 16 April 2012 100%

Total 319 317 99%


Ceria DSL 68 68 June 2012 100%

Pancaran SSSD 40 40 June 2012 & Feb 2013 100%

Rembulan DSL 94 94 Feb 2013 100%

Ceria 2 DSL 45 42 Sept 2013 93%

Pancaran 2 DSSD 16 16 Sept 2013 100%

Sinaran 2 2.5 storey semi-detached (2.5 SSD) 18 16 Sept 2013 89%

Total 281 276 98%

Lakeside 1 (16.40 acres)

Ceria 2 DSL 105 96 Nov 2013 91%

Pancaran 2 DSSD 22 18 Nov 2013 82%

Sinaran 2 2.5 SSD 22 13 Nov 2013 59%

Total 149 127 85%

Grand Total 1074 1045 97%


Bauxite extraction. Bauxite was discovered in its Ladang Bukit Goh acreage during

clearing of the land for the development of KotaSAS. An evaluation report estimates that the total tonnage of bauxite deposits on the surveyed lands stands at 1,426,500 tonnes. The company has been extracting and selling bauxite since April 2014.


16 July 2014


Strategies Future growth to be driven by its replanting and new planting programmes.

Tanah Makmur intends to improve its oil palm age profile by replanting its old mature plantation estates, which account for about 9.5% of its total planted area, as well as planting on its landbank reserves. The company plans to replant 2,061ha of its matured estates over the next four years. Tanah Makmur expects new planting activities at its Ladang Alur Seri and Ladang Ulu Lepar plantations – involving another 3,093ha of land – to be completed over the next three years. With the new plantings in place, Tanah Makmur’s total planted area is expected to further improve by 23% and this ought to provide some future output growth. Our estimates.

We project FFB growth of 3.4% for FY14 and 7.9% for FY15, after taking into account the planting and replanting programmes currently underway.

We assume a FFB yield of 20 tonnes/ha for FY14 and FY15.

We project CPO prices to increase to MYR2,700/tonne in FY14 and MYR2,900/tonne in FY15.

With the assumptions above, we expect Tanah Makmur to generate GPMs of 42% and 43% for FY14 and FY15 respectively for its plantation division. The company’s average production cost of MYR1,200-MYR1,300/tonne is in line with the industry average.

Figure 10: Tanah Makmur's replanting and new planting programmes

Average

Size of land age of Year planned for

Plantation estate with old palms (ha) old palms replanting/new planting

Replanting programmes

Ladang Charuk Puting 808.7 40 2014 and 2015

Ladang Sungai Sering 145 33 2014

Ladang Lembah Klau 974 24 2017 and 2018

Ladang Empang Jaleh 133.26 33 2014

Sub-total 2060.96

New planting programmes

Ladang Alur Seri 2023.00 - 2014 and 2015

Ladang Ulu Lepar 1069.67 - 2015 and 2016

Sub-total 3092.67

Grand total 5153.63


Continuous landbank expansion plan. Tanah Makmur plans to increase its

plantation landbank to at least 25,000ha over the next three years, ie by 39% from its current 17,969ha landbank. The company intends to achieve this by acquiring suitable land within Pahang, ie its primary concentration area. It may consider expanding into Sabah, Sarawak or overseas. Currently, Tanah Makmur has identified two pieces of greenfield plantation land in Kampong Bongsu (measuring 1,214ha) and Ulu Lepar (measuring 1,436ha), both in Pahang. The company is working with LKPP to secure the acquisition of this land from the State Government. Tanah Makmur has estimated that the acquisition of these two plots of land will cost approximately MYR10.0m (approximately MYR3,774/ha), which is inexpensive when compared with the industry average. Palm oil mill expansion to cater for anticipated FFB growth. Tanah Makmur

plans to expand the capacity of its palm oil mill by 2016. It is looking to boost capacity to 45 tonnes/hour from 30 tonnes/hour by upgrading the existing processing line at the mill. With the additional 15 tonnes/hour, it is targeting total CPO and PK production to increase by another 50%. The company expects expansion costs, estimated for a period of not more than eight months, to be at about MYR500,000. This will be funded by its IPO proceeds. We do not expect Tanah Makmur to have any problems in acquiring more external FFB to service the expanded CPO mill. Currently, the company acquires about 45% of FFB for its mill from external sources.


16 July 2014


Potential overall GDV of MYR3.0bn for the KotaSAS township. Only around 9.7%

of the land has been developed thus far. KotaSAS still has around 1,355 acres of land for future development and we understand that the present GDV of MYR1.8bn could increase to a potential MYR3.0bn going forward, should a new state administrative complex and assembly hall be relocated to this township. By the end of 2014, Tanah Makmur also plans to launch 478 residential units, which will include the project’s first bungalows as well as 40 units of commercial shop lots valued at approximately MYR245m in GDV. New income stream from bauxite mining. We project an additional earnings boost

from Tanah Makmur’s bauxite mining business in FY14-FY16. The company, via its 60%-owned mining subsidiary Kreatif Selaras Mining SB, entered into an agreement with SE Satu SB, which saw the latter being appointed as the exclusive operator to mine and extract bauxite from the identified lands. Based on an indicative selling price of USD46/tonne – and estimated deposits of 1,426,500 tonnes – we project for Tanah Makmur to possibly generate a gross profit of MYR88.3m over the next three years from this mining business.

Risks Reliance on foreign workers. Tanah Makmur’s plantation business is labour

intensive. The company relies heavily on foreign labour, primarily Indonesian workers. 78.7% of its workforce of 1,006 employees is made up of foreign workers. Hence, any shortage of workers due to changes in the Government’s immigration policies may affect the operations at the company’s plantation estates. Unfavourable weather conditions and other inherent business risks. Insufficient

rainfall or, conversely, excessive downpour that can cause flooding can adversely affect the quantity of FFB harvested and lower yields. Such a decline in production may impact Tanah Makmur’s plantation earnings if there is no support from higher selling prices. Other than weather conditions, other risks include the outbreak of diseases or damage to its oil palm trees at its plantations can also disrupt production. Commodity price fluctuations. As is with commodities, CPO and PK prices are

also influenced by cyclical factors and are prone to market volatility. Observations based on the MPOB’s published figures show that annual average CPO prices have risen as high as MYR3,219/tonne in 2011 and dropped to as low as MYR1,394/tonne in 2005.

Figure 11: Movement of CPO and PK prices

Title:

Source:

Please fill in the values above to have them entered in your report

0.00

500.00

1000.00

1500.00

2000.00

2500.00

3000.00

3500.00

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

RM/M

T

Year

CPO PK

Source: MPOB


16 July 2014


Key Investment Highlights The plantation segment is the anchor. Tanah Makmur’s plantation operations are

the company’s stable backbone, contributing 83-87% on average to its FY11-13 gross profit. The company’s property division, in comparison, accounted for 13-17% during the same period. We expect the plantation business to record gross profit growth of 3% and 11% for FY14 and FY15 respectively due to expected higher CPO prices and increased capacity at its CPO mill.

Figure 12: Percentage of gross profit contributions

Title:

Source:

Please fill in the values above to have them entered in your report

87% 86% 83%

64% 66%

13% 14% 17%

12% 11%

24% 22%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013 2014F 2015F

Plantation Property Mining


Property provides growth. Tanah Makmur’s property business, being relatively new

to the company, has good growth prospects on the back of future property launches. With its favourable location (near the East Coast Highway and the Sultan Haji Ahmad Shah Airport), as well as the establishment of the East Coast Economic Region (ECER) – with Kuantan having been identified as a hub for commerce and trade under the ECER’s master plan – we expect Tanah Makmur’s property launches to be well received in the coming years. Figure 13: Map of the ECER

Source: ECER Development Council (ECERDC)


16 July 2014


Figure 14: The ECER special economic zone

Source: ECER Development Council (ECERDC)

Bauxite mining provides additional earnings. We estimate Tanah Makmur’s new

stream of income from its bauxite mining unit to contribute 22-24% on average to its gross profits in FY14-FY15. Strong ties with the Pahang State Government. Tanah Makmur has a strong

working relationship with its major shareholder, LKPP, which is an agency of the State Government of Pahang. LKPP has been entrusted with the leadership role for the state’s agriculture sector and other similarly related activities. This agency has provided support to Tanah Makmur’s plantation business by facilitating in the acquisition and leasing of plantation lands. 30% dividend payout policy. Tanah Makmur has stated its intention to adopt a

dividend policy of paying out a minimum 30% of profit after tax. This policy is estimated to produce a decent net yield of 4.1% for FY15. 2-year earnings CAGR of 24%. Overall, we are projecting for Tanah Makmur to post

earnings growth of 44.5% for FY14 (coming from a lower base) and 7.1% for FY15. We expect this to be driven by single-digit growth in its plantation division, good take-up rates at future property launches in KotaSAS and the new revenue stream from its bauxite mining business. We extrapolate that every MYR100/tonne change in the price of CPO could affect earnings by 6-7% per annum.


16 July 2014


Valuation FV of MYR1.74. Our FV for the stock is MYR1.74, pegged to 10x FY15F P/E. Our FV

presents an upside of 39% from its IPO price of MYR1.25. We derive our P/E target by using the 11.2x average FY15F P/E of its peers and applying a 10% discount to the average P/E. This is given Tanah Makmur’s smaller landbank size and market capitalisation.

Figure 15: Peer comparison

Source: RHB estimates, Bloomberg

Company Planted area

(ha)

Market capitalization

(MYRm)

FY13 FY14F FY15F

Far East Holdings 20,768 1,102.80 14.18 NA NA

Kim Loong Resources 14,350 942.00 12.63 12.98 10.86

Sarawak Plantation 31,266 774.40 18.10 9.41 7.18

United Malacca 21,661 1,500.70 21.7 20.49 15.47

Tanah Makmur 13,530 497.70 11.36 6.87 7.14

High 31,266 1,500.70 21.70 20.49 15.47

Average 22,011 1,079.98 16.65 14.29 11.17

Low 14,350 774.40 12.63 9.41 7.18

Price earnings

multiples (x)


16 July 2014


Financial Exhibits

Profit & Loss (MYRm) Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F

Total turnover 282 208 243 303 319

Cost of sales (136) (103) (152) (180) (187)

Gross profit 146 104 92 123 132

Other operating costs (28) (17) (26) (32) (33)

Operating profit 118 87 66 91 98

Operating EBITDA 123 95 76 100 108

Depreciation of fixed assets (2) (4) (6) (6) (6)

Amortisation of intangible assets (3) (3) (4) (4) (4)

Operating EBIT 118 87 66 91 98

Interest expense (6) (4) (5) (6) (7)

Pre-tax profit 112 83 62 85 91

Taxation (27) (17) (17) (20) (22)

Minority interests (5) (3) (2) (2) (2)

Profit after tax & minorities 81 62 43 63 67

Reported net profit 81 62 43 63 67

Recurring net profit 81 62 43 63 67


Cash flow (MYRm) Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F

Operating profit 118 87 66 91 98

Depreciation & amortisation 5 7 9 9 10

Change in working capital (37) 20 (6) 4 (7)

Other operating cash flow 8 (3) 2 (0) (0)

Operating cash flow 95 112 71 104 101

Interest received (1) (0) (0) (0) (0)

Interest paid 6 4 3 6 7

Tax paid (29) (22) (16) (20) (22)

Cash flow from operations 71 94 57 89 86

Capex (26) (28) (14) (25) (25)

Other investing cash flow (7) (14) (11) (11) (11)

Cash flow from investing activities (33) (42) (25) (36) (36)

Dividends paid (17) (17) (26) (26) (26)

Proceeds from issue of shares 0 1 1 - -

Increase in debt (61) (18) (23) (23) (23)

Other financing cash flow 13 (1) 1 (2) (3)

Cash flow from financing activities (65) (36) (47) (51) (52)

Cash at beginning of period 61 69 47 37

Total cash generated (26) 15 (14) 2 (2)

Implied cash at end of period (26) 77 54 49 35



16 July 2014


Financial Exhibits

Balance Sheet (MYRm) Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F

Total cash and equivalents 61 69 47 37 29

Inventories 3 11 13 15 15

Accounts receivable 38 29 33 41 44

Other current assets 79 79 85 113 146

Total current assets 182 187 177 206 234

Total investments 0 0 0 0 0

Tangible fixed assets 117 141 149 187 212

Intangible assets 41 40 40 40 40

Total other assets 87 99 108 128 158

Total non-current assets 246 280 297 355 410

Total assets 427 467 474 561 644

Short-term debt 23 29 12 19 22

Accounts payable 27 33 34 49 51

Other current liabilities 2 7 10 14 12

Total current liabilities 53 70 56 82 86

Total long-term debt 65 44 44 56 66

Other liabilities 37 33 34 34 34

Total non-current liabilities 102 76 78 90 100

Total liabilities 155 146 134 171 186

Share capital 170 173 173 173 173

Retained earnings reserve 91 130 146 196 265

Other reserves 4 4 5 5 5

Shareholders' equity 265 307 323 373 442

Minority interests 7 14 16 16 16

Other equity (0) (0) - - -

Total equity 272 321 340 390 458

Total liabilities & equity 427 467 474 561 644


Key Ratios (MYR) Dec-11 Dec-12 Dec-13 Dec-14F Dec-15F

Revenue growth (%) 0.0 (26.5) 17.3 24.3 5.4

Operating profit growth (%) 0.0 (25.9) (24.1) 37.4 7.8

Net profit growth (%) 0.0 (22.5) (31.4) 46.4 7.3

EPS growth (%) (23.0) (66.9) (31.4) 46.4 7.3

Bv per share growth (%) 0.0 15.6 5.4 15.5 18.4

Operating margin (%) 41.8 42.1 27.2 30.1 30.8

Net profit margin (%) 28.5 30.1 17.6 20.7 21.1

Return on average assets (%) 0.0 14.0 9.1 12.1 11.2

Return on average equity (%) 0.0 21.8 13.6 18.0 16.5

Net debt to equity (%) 9.9 1.2 2.9 9.7 13.0

DPS 0.00 0.00 0.00 0.05 0.05

Recurrent cash flow per share 0.42 0.24 0.14 0.22 0.22



16 July 2014


SWOT Analysis

Strong working relationship with LKPP, its major shareholder

Upstream planter with downstream capability

Property development to unlock land value

High dependency on foreign workers

Unexpected changes in weather

Fluctuations in commodity prices

Softening measures in the property sector

Landbank expansion will provide better growth over the medium term

Potential increase in GDV of its property development project

Mill capacity expansion to meet future growth in FFB

Average age of trees are not too young (~16 years)

Replanting programmes may result in lower output in the near term

Limited track record in the bauxite mining business

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

P/E (x) vs EPS growth

P/E (x) (lhs) EPS growth (rhs)

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-11

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-12

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P/BV (x) vs ROAE

P/B (x) (lhs) Return on average equity (rhs)

Source: Company data, RHB estimates Source: Company data, RHB estimates

Company Profile Tanah Makmur is primarily an oil plantation company (that also operates a palm oil mill) with property development as its secondary business. It recently ventured into the bauxite mining business when it was awarded the necessary licenses in April 2014.


16 July 2014


16

RHB Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage Disclosure & Disclaimer All research is based on material compiled from data considered to be reliable at the time of writing, but RHB does not make any representation or warranty, express or implied, as to its accuracy, completeness or correctness. No part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. This report is general in nature and has been prepared for information purposes only. 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17

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